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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from N/A to
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Commission file number 1-10959
STANDARD PACIFIC CORP.
(Exact name of registrant as specified in its charter)
Delaware 33-0475989
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15326 Alton Parkway, Irvine, California, 92618
(Address of principal executive offices)
(949) 789-1600
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value New York Stock Exchange and
(and accompanying Preferred Share Purchase
Rights) Pacific Stock Exchange
8 1/2% Senior Notes Due 2007 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [_]
As of March 1, 2001, there were 30,192,157 shares of common stock
outstanding. At that date, the aggregate market value of voting stock held by
non-affiliates of the registrant was $613,539,000.
Documents incorporated by reference:
Portions of the Company's Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the Company's 2001 Annual Meeting
of Stockholders are incorporated by reference into Part III hereof.
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STANDARD PACIFIC CORP.
PART I
ITEM 1. BUSINESS
We are a leading geographically diversified builder of high quality single-
family homes designed to appeal to a broad range of move-up home buyers. We
have operations throughout the major metropolitan areas in California, Texas,
Arizona and Colorado. In California, we have over 30 years of operating
experience and currently sell homes in Los Angeles, Orange, Riverside, San
Bernardino, San Diego and Ventura Counties in Southern California, and the San
Francisco Bay area in Northern California. We have been building homes in
Texas for over 20 years, with established operations in Dallas, Houston and
Austin. In August 1998, we entered the Phoenix, Arizona market through the
acquisition of an ongoing homebuilding operation and, most recently, in August
2000, we furthered our geographic diversification by entering the Denver,
Colorado market through the acquisition of The Writer Corporation. In 2000,
approximately 62%, 14%, 20% and 4% of our home deliveries (including
unconsolidated joint ventures) were in California, Texas, Arizona and
Colorado, respectively.
In addition to our core homebuilding operations, we also provide mortgage
financing and title services to our homebuyers through our subsidiaries and
joint ventures, Family Lending Services, SPH Mortgage, WRT Financial and SPH
Title. For business segment financial data, see our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
Standard Pacific Corp. was incorporated in the State of Delaware in 1991.
Through our predecessors, we commenced our homebuilding operations in 1966
with a single tract of land in Orange County, California. Our principal
executive offices are located at 15326 Alton Parkway, Irvine, California
92618. Unless the context otherwise requires, the terms "we," "us" and "our"
refer to Standard Pacific Corp. and its predecessors and subsidiaries.
Strategy
The main elements of our strategy include:
Focusing on Growth in our Existing Markets
We continue to focus on growing our California, Texas, Arizona and Colorado
homebuilding operations through new community openings, expansion into
adjacent markets and new product offerings. In 2000 we opened 55 new
communities, a 28 percent increase over new community openings in 1999. We
intend to continue this strong pace of new community openings in 2001 with
approximately 60 new projects slated to begin selling this year. We have also
expanded recently into regions adjacent to our existing markets such as the
Inland Empire in Southern California and certain outlying cities in the San
Francisco Bay area in Northern California. As part of our focus on expanding
our product offerings, we are entering the active adult market in 2001 through
the development of a three-project age restricted community in South Orange
County. We believe that our strong market presence and reputation for building
high quality homes in our existing markets combined with the aging baby boom
population will present many opportunities to deliver homes in this growing
market segment.
Expanding and Diversifying Geographically through Acquisition
While the majority of our historical growth has been within our California
and Texas markets, we have also diversified geographically during the past few
years by expanding into two of the most attractive homebuilding markets in the
United States. We entered the Phoenix metropolitan market in 1998 through an
acquisition of an ongoing homebuilding operation. In August 2000, we entered
the Denver and Fort Collins markets in Colorado through the acquisition of The
Writer Corporation, a long-time Colorado builder. Both of these acquisitions
included strategic lot inventories as well as experienced management teams. As
a result of these acquisitions, as
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well as continued growth in our Texas markets, we expect that our non-
California divisions will represent approximately 50 percent of our unit
volume in 2001, compared to just over 20 percent in 1997. Going forward, we
plan to continue to pursue acquisitions on an opportunistic basis as a means
of expanding and diversifying geographically.
Targeting a Broad Range of Homebuyers in the Attractive Move-up Market
We focus on construction of single-family homes for use as primary
residences by move-up buyers throughout a broad range of products and price
points. During fiscal 2000, the sales prices of our homes generally ranged
from $125,000 to $1,500,000, a broad market segment in our geographic areas.
We believe this diverse product platform enables us to take advantage of
additional market opportunities and positions us strategically with product
offerings that appeal to a wide range of customers. In 2000, our average home
price, including joint ventures, was $362,035, significantly above that of
most of our public competitors. As a result of our focus on move-up homes, we
also believe we are well positioned to benefit from favorable demographic
trends, including the peak earning years of the baby boom population and the
strong national economic performance resulting in tremendous wealth creation
over the last 10 years.
Maintaining Strong Land Positions, Including the Utilization of Joint Ventures
and Strategic Alliances
We have been operating in California for over 30 years and in Texas for
over 20 years, and have established a strong reputation in these markets with
many leading land owners. We believe that our long standing relationships give
us a competitive edge in securing quality land positions at competitive prices
in these markets. We are also continuing to build our reputation in Arizona,
where our management team has long-standing local relationships with land
owners and others. Our recently acquired Colorado subsidiary, The Writer
Corporation, has been building homes in Colorado since 1965 and enjoys a
strong reputation in that market. We generally attempt to maintain an
inventory of building sites sufficient for construction of homes over a period
of approximately three to four years, and believe based on our current
operations and market conditions that our 17,000 owned or controlled building
sites at December 31, 2000 will be sufficient for our operations over this
period. Increasingly, we make use of joint ventures and strategic alliances as
a means of securing land positions, minimizing risk on larger longer-term
projects and effectively leveraging our capital base. At December 31, 2000, we
controlled approximately 3,000 lots through joint ventures.
Leveraging our Experienced Management Team and Decentralized Operating
Structure
Our senior corporate and division operating managers average over 20 years
of experience in the homebuilding business. Each division is run by a local
manager with an in-depth familiarity with the geographic areas within which
the division operates. Land acquisition opportunities are generally first
identified by the local division manager with the final decision regarding the
land purchase and project development being made in conjunction with our
corporate officers. Thereafter, each manager conducts the operations of the
division, including project planning, subcontracting and sales and marketing,
relatively autonomously. The experience and depth of our management team gives
us the ability to evaluate and explore potential new market opportunities and
our decentralized operations have proven to be an important element in
recruiting and retaining key managers and attracting potential acquisition
candidates.
Conservative Operating Strategy and Emphasis on Control of Overhead and
Operating Expenses
Mindful of the cyclical nature of the homebuilding business, we operate
conservatively and continuously seek to minimize overhead expenses through the
following strategies:
. We generally purchase entitled land only when we anticipate commencing
development or construction on it within a relatively short time period.
. We customarily acquire unimproved or improved land zoned for residential
use which appears suitable generally for the construction of 50 to 200
homes and build, depending on the geographic market, on a lot by lot
basis or in increments of 10 to 30 homes.
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. The number of homes built in the first increment of a project is based
upon internal market studies. The timing and size of subsequent
increments depends to a large extent upon sales rates experienced in the
earlier increments with the goal of minimizing the number of completed
and unsold homes held in inventory.
. We seek to maintain a strong balance sheet--our net homebuilding debt to
total capitalization ratio was 44.3 percent at December 31, 2000--and to
maintain multiple sources of liquidity.
. We strive to control overhead costs by centralizing key administrative
functions and limiting the number of middle level management positions.
. We seek to minimize our fixed costs by contracting extensively with third
parties, such as subcontractors, architects and engineers, to design and
build our homes.
Our emphasis on operating conservatively and controlling overhead is
reflected both in our minimal inventory of completed and unsold homes--we had
125 completed and unsold homes at December 31, 2000--and our selling, general
and administrative expense rate which is one of the lowest among the leading
public homebuilders.
Operations
We currently build homes in California, Texas, Arizona and Colorado through
a total of nine operating divisions, with 151 projects under development and
47 projects held for future development at December 31, 2000.
Substantially all of our homes in California, Texas and Arizona are single-
family detached dwellings, although during the last three years up to
approximately 1 percent of our deliveries in these markets have been townhomes
generally configured as duplexes. For the year ended December 31, 2000,
approximately one-half of The Writer Corporation's deliveries consisted of
townhomes. We believe there is a significant opportunity to increase our
offering of single-family detached dwellings in the Colorado market.
Our homes are designed to suit the particular area of the country in which
they are located and are available in a variety of models, exterior styles and
materials depending upon local preferences. They typically range in size from
approximately 2,000 to 3,500 square feet and include four to five bedrooms,
three or four baths, a living room, kitchen, dining room, family room and a
two or three-car garage. We also have built single-family attached and
detached homes ranging from 1,100 to over 5,000 square feet. For the years
ended December 31, 2000, 1999 and 1998, the average selling prices of our
homes, including sales of the unconsolidated joint ventures, were $362,035,
$346,749 and $329,972, respectively.
Land Acquisition, Development and Construction
In considering the purchase of land for the development of a project, we
review such factors as:
. proximity to existing developed areas;
. the reputation and desirability of the surrounding developed areas;
. population growth patterns;
. availability of existing community services, such as water, gas,
electricity and sewers;
. school districts;
. employment growth rates;
. the expected absorption rates for new housing;
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. environmental condition of the land;
. transportation conditions and availability;
. the estimated costs of development; and
. the entitlement status of the property.
Generally, if all requisite governmental agency approvals are not in place
for a parcel of land, we enter into a conditional agreement to purchase the
parcel, making only a modest deposit. Our general policy is to complete a
purchase of land only when we can reasonably project commencement of
construction within a relatively short period of time. Closing of the land
purchase is, therefore, generally made contingent upon satisfaction of
conditions relating to the property and our ability to obtain all requisite
approvals from governmental agencies within a given period of time. Our
development work on a project includes obtaining any necessary zoning,
environmental and other regulatory approvals, and constructing, as necessary,
roads, sewer and drainage systems, recreational facilities and other
improvements.
We customarily acquire unimproved or improved land zoned for residential
use which appears suitable for the construction of 50 to 200 homes.
Construction is then accomplished in smaller sized increments or on a lot by
lot basis depending on the geographic market. The number of homes built in the
first increment of a project is based upon our internal market studies. The
timing and size of subsequent increments depends on the sales rates of earlier
increments.
We typically use both our equity (internally generated funds) and unsecured
financing in the form of bank debt, public note offerings and other unsecured
debt to fund land acquisitions. To a lesser extent, we use purchase money
trust deeds to finance the acquisition of land. We also enter into land
development joint ventures and option structures with financial partners from
time to time. Joint ventures are typically used for projects that have long
lead times or require substantial capital investments. Generally, with the
exception of purchase money trust deeds, joint ventures, and option
structures, project specific financing is not used.
We essentially function as a general contractor with our supervisory
employees coordinating all work on the project. The services of independent
architectural, design, engineering and other consulting firms are engaged to
assist in project planning and design, and subcontractors are employed to
perform all of the physical development and construction work on the project.
We do not have long-term contractual commitments with any of our
subcontractors, consultants or suppliers of materials. However, because of our
market presence and long-term relationships, we have generally been able to
obtain sufficient materials and commitments from subcontractors and
consultants, even during times of market shortages. These arrangements are
generally entered into on a phase-by-phase or project-by-project basis at a
fixed price after competitive bidding. We believe that the low fixed labor
expense resulting from conducting our operations in this manner has been
instrumental in enabling us to retain the necessary flexibility to react to
increases or decreases in demand for housing.
Although the construction time for our homes varies from project to project
depending on the time of year, the size of the homes, local labor situations,
the governmental approval processes, availability of materials and supplies
and other factors, we can typically complete the construction of a home within
one of our projects in approximately four to six months.
Joint Ventures
We enter into land development and homebuilding joint ventures from time to
time as a means of managing our risk profile, expanding our market
opportunities and leveraging our capital base. Land development joint ventures
are typically entered into with other homebuilders and developers as a method
of spreading the financial and market risks associated with developing larger
projects. Homebuilding joint ventures may involve partnering with existing
landowners or other builders as a means of acquiring desirable properties. In
both types of joint ventures, third party financing is typically obtained. For
the years ended December 31, 2000, 1999 and 1998, we
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delivered 155, 18 and 40 homes, respectively, through unconsolidated joint
ventures and plan on delivering approximately 350 homes from joint ventures in
2001. Our more significant land development and homebuilding joint ventures
are described below.
In 1996, our Orange County division entered into a joint venture to develop
and deliver up to approximately 800 homes in Fullerton and Brea, California.
During 2000, 1999 and 1998, we delivered 155, 18 and 40 new homes,
respectively, from this unconsolidated joint venture. As of December 31, 2000,
we had a net investment of approximately $16.9 million, including
undistributed earnings of approximately $10.8 million, in this joint venture.
In 1997, our Northern California division entered into two joint ventures
with another homebuilder to develop approximately 700 lots and a championship
golf course in Gilroy, California. Fifty percent of these lots will be sold to
us at cost for the construction and sale of homes. As of December 31, 2000, we
had purchased 130 lots from the land development venture and had a combined
net investment in both ventures of approximately $13.6 million.
During 1997, we entered into a joint venture with Catellus Residential
Group, Inc. and an affiliate of Starwood Capital Group L.L.C. to acquire and
develop a 3,470-acre master-planned community located in south Orange County
(the "Talega Joint Venture"). The Talega Joint Venture plans to develop and
deliver in phases finished lots for up to approximately 4,500 attached and
detached homes, develop a championship golf course, and develop certain
community amenities and commercial and industrial components. As a one-third
participant in this long-term project, we may be required to invest up to $20
million in the project and have received rights of first offer entitling us to
purchase at fair market value up to 1,000 finished lots from the joint venture
for construction and sale of homes by us. As of December 31, 2000, we did not
have a net investment in this joint venture. Through January 31, 2001 we had
purchased 323 lots from the joint venture (excluding lots purchased in
connection with the Talega Village Joint Venture noted below).
In 1998, we entered into a joint venture with Centex Homes to develop
approximately 700 lots in Riverside County, California. Our Southern
California Inland Empire division will purchase approximately half of these
lots at cost for the construction and sale of homes and sales of lots to other
builders. As of December 31, 2000, we had purchased 225 lots from the venture
and had a net investment of approximately $13.0 million.
In 1999, we entered into a joint venture with Catellus Residential Group,
Inc. to acquire and develop an age-qualified community within the Talega
master-planned community in San Clemente, California (the "Talega Village
Joint Venture"). The Talega Village Joint Venture plans to develop and deliver
up to approximately 275 homes with sales scheduled to begin in the second
quarter of 2001. This community will feature three separate product types with
its own resident recreation center that will contain various recreational
amenities. Additionally, this project is adjacent to a portion of the
championship golf course within the Talega master-planned community. As of
December 31, 2000, we had a net investment of approximately $8.9 million in
this joint venture.
Our Orange County division is a participant in a homebuilding joint venture
located in the San Gabriel Valley area of Southern California. This joint
venture is scheduled to construct and deliver in excess of 300 homes.
Development commenced in late 2000 and first home deliveries are planned for
early to mid 2002. As of December 31, 2000, our net investment in this joint
venture totaled approximately $14.1 million.
In July 2000, our Northern California division entered into a joint venture
with Catellus Residential Group, Inc. and a local real estate developer to
construct an 82 unit condominium complex in the City of San Francisco.
Construction of this project is underway and sales of units are currently
scheduled to begin in the second quarter of 2001 with first home deliveries
planned for the second half of 2001. As of December 31, 2000, our net
investment in this joint venture totaled approximately $12.4 million.
In December 2000, our Northern California division entered into a joint
venture with another homebuilder to develop and deliver up to approximately
180 homes in Concord, California. Development is scheduled to commence in
early 2001 with the first home deliveries planned for late 2001 or early 2002.
As of December 31, 2000, our net investment in this joint venture was
approximately $1 million.
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Marketing and Sales
Our homes are generally sold by our own sales personnel. Furnished and
landscaped model homes are typically maintained at each project site.
Homebuyers are afforded the opportunity to select, at additional costs,
various optional amenities and upgrades such as prewiring and electrical
options, upgraded flooring, cabinets, finished carpentry and countertops,
varied interior and exterior color schemes, additional appliances and some
room configurations. We make extensive use of advertisements in local
newspapers, illustrated brochures, billboards and on-site displays.
Our homes are typically sold during or prior to construction using sales
contracts which are usually accompanied by a cash deposit, although some of
our homes are sold after completion of construction. For a limited time,
purchasers are typically permitted to cancel these contracts if they fail to
qualify for financing. In some cases, purchasers are also permitted to cancel
these contracts if they are unable to sell their existing homes or if certain
other conditions are not met. Sales are recorded after construction is
completed, we receive payment of the purchase price and title passes.
During each of the years ended December 31, 2000, 1999 and 1998, we
experienced cancellation rates of 23 percent, 24 percent and 25 percent,
respectively. Although cancellations can delay the delivery of homes, they
have not, during the last few years, had a material negative impact on sales,
operations or liquidity. In order to minimize the negative impact of
cancellations, it is our policy to closely monitor the progress of prospective
buyers in obtaining financing and to monitor and adjust our start plan to
continuously match the level of demand for our homes. At December 31, 2000,
1999 and 1998, we had an inventory of completed and unsold homes of 125, 167
and 136, respectively.
Financial Services
Customer Financing
We offer mortgage financing to our homebuyers in all of the markets in
which we operate. Family Lending Services, Inc. offers mortgage financing in
our California markets and is a wholly owned subsidiary. SPH Mortgage and WRT
Financial are joint ventures with financial institution partners. SPH Mortgage
offers mortgage financing to our Arizona and Texas homebuyers and WRT
Financial offers mortgage financing to our Colorado homebuyers.
The principal sources of revenues for these mortgage banking operations are
fees generated from loan originations, net gains on the sale of loans, and
interest income earned on loans during the period they are held prior to sale.
In addition to being a source of revenues, these mortgage operations benefit
our homebuyers and complement our homebuilding operations by offering a
dependable source of financing staffed by a team of professionals experienced
in the new home purchase process and Standard Pacific's sales and escrow
procedures.
Family Lending sells the loans it originates in the secondary mortgage
market, generally on a non-recourse basis with servicing rights released. It
typically finances its loans held for sale with borrowings under its
warehousing line of credit (secured by the loans and, in some circumstances,
certain servicing rights) with a third party lender. SPH Mortgage and WRT
Financial generally sell the loans they originate, on a non-recourse basis and
with servicing rights released, to their respective financial institution
partners.
SPH Mortgage, WRT Financial and, to a lesser extent, Family Lending manage
interest rate risk with respect to loan commitments and loans held for sale by
preselling loans. Preselling loans consists of obtaining commitments (subject
to certain conditions) from investors (in the case of SPH Mortgage and WRT
Financial, typically from their financial institution partners) to purchase
mortgage loans concurrently with extending interest rate locks to loan
applicants. SPH Mortgage, WRT Financial and Family Lending presold
approximately 100, 100 and 63 percent, respectively, of their total mortgage
loans originated during the year ended December 31, 2000.
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To enhance potential returns on the sale of mortgage loans, Family Lending
also originates a portion of its mortgage loans on a non-presold basis. To
hedge its interest rate risk associated with extending interest rate
commitments to customers prior to selling loans to investors and holding
closed loans following funding, Family Lending enters into forward sale
commitments of mortgage-backed securities. Loans originated in this fashion
are typically held by Family Lending and financed under its mortgage warehouse
credit facility for 15 to 60 days before they are sold to third party
investors. Family Lending utilizes the services of a third party advisory firm
to assist with the implementation and execution of its hedging strategy for
loans originated on a non-presold basis. While this hedging strategy should
assist Family Lending in mitigating risk associated with originating loans on
a non-presold basis, these instruments involve elements of market risk which
could result in losses on loans originated in this manner if not hedged
properly. (See "Management's Discussion and Analysis--Quantitative and
Qualitative Disclosures About Market Risk" for further discussion of selling
mortgage loans on a non-presold basis).
Title Services
In Texas, we act as a title insurance agent and offer title examination
services to our Texas homebuyers through our subsidiary, SPH Title, Inc. We
assume no underwriting risk associated with these title policies.
Certain Factors Affecting our Operations
Set forth below are certain matters that may affect us.
Economic Conditions and Interest Rates Affect Our Industry
The homebuilding industry is highly cyclical. Changes in world, national
and local economic conditions affect our business and markets. In particular,
declines in consumer confidence or employment levels in our markets or in
stock market valuations may adversely affect the demand for homes and could in
turn reduce our sales and earnings.
Our customers typically finance their home purchase through lenders
providing mortgage financing. Increases in interest rates or decreases in the
availability of mortgage financing could depress the market for new homes
because of the increased monthly mortgage costs, or the decreased availability
of financing, to potential homebuyers. Even if some potential customers do not
need financing, changes in interest rates and mortgage availability could make
it harder for them to sell their existing homes to potential buyers who need
financing. This could reduce our sales and earnings.
Additional Capital May Not Be Available If Needed
Our operations require significant amounts of cash, and, while we have no
current need for additional funds, we may be required to seek additional
capital, whether from sales of equity or by borrowing more money, for the
future growth and development of our business or to fund our operations and
inventory, particularly in the event of a market downturn. If additional funds
are raised through the issuance of stock, dilution to stockholders will
result. If additional funds are raised through the incurrence of debt, we will
incur increased debt servicing costs and may become subject to additional
restrictive financial and other covenants. We can give no assurance as to the
terms or availability of additional capital. Moreover, the indentures for our
outstanding public notes and revolving credit facility contain provisions that
may restrict the debt we may incur in the future. If we are not successful in
obtaining sufficient capital, it could reduce our sales and earnings and
adversely impact our financial position.
We Depend on the California Market
Although we have increased our geographic diversification in recent years,
we still conduct a significant portion of our business in California. Demand
for new homes, and in some instances home prices, have declined from time to
time in California particularly as a result of weak economic conditions. We
cannot be certain that
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the economic climate experienced in California in 2000 will continue. If the
demand for new homes or if home prices decline in one or more of the markets
in which we operate, our earnings may be harmed.
In recent months, California has experienced state-wide electrical power
shortages. These power shortages have resulted in, among other things, rolling
blackouts and higher energy prices. Rolling blackouts may continue or worsen
into more frequent blackouts or blackouts of longer duration. Higher wholesale
electrical power prices have also reportedly threatened the solvency of two of
the state's larger utility companies. Continued power shortages and increased
prices, as well as the financial insolvency of one or more utility companies,
could negatively impact California's economy and in the longer-term cause some
businesses to leave California. This could adversely impact the demand for our
homes and reduce our sales and earnings.
Risk of Slow or Anti-Growth Initiatives
Several states, cities and counties in which we operate have in the past
approved, or approved for inclusion on their ballot, various "slow growth" or
"no growth" initiatives and other ballot measures which could negatively
impact the availability of land and building opportunities within those
localities. In Arizona and Colorado, state-wide initiatives designed to
restrict the areas in which new housing could be built were on the ballot in
November 2000, but did not pass. Approval of similar or other slow or no
growth measures would reduce our ability to build and sell homes in the
affected markets and create additional costs and administration requirements,
which in turn could harm our future sales and earnings.
Possible Shortage of Land for Purchase and Development; Inventory Risks
Our success in developing, building and selling homes depends in part upon
the continued availability of suitable undeveloped land at acceptable prices.
The availability of undeveloped land for purchase at favorable prices depends
on a number of factors outside of our control, including the risk of
competitive over-bidding of land prices and restrictive governmental
regulation. Should suitable land opportunities become less available, it could
limit our ability to develop new communities, increase land costs and
negatively impact our sales and earnings.
In addition, the risk of owning developed and undeveloped land can be
substantial for homebuilders. The market value of undeveloped land, buildable
lots and housing inventories can fluctuate significantly as a result of
changing economic and market conditions. In the event of significant changes
in economic or market conditions, we may have to write-down land holdings,
sell homes at a loss and/or hold land in inventory longer than planned.
Inventory carrying costs can be significant and can result in losses in a
poorly performing project or market.
Our Industry is Highly Competitive
The homebuilding industry is highly competitive and fragmented. We compete
with numerous other residential construction firms, including large national
and regional firms, for customers, undeveloped land, financing, raw materials
and skilled labor. We compete for customers primarily on the basis of the
location, design, quality and price of our homes and the availability of
mortgage financing. Some of our competitors have substantially larger
operations and greater financial resources than we do, and as a result may
have lower costs of capital, labor and materials than us, and may be able to
compete more effectively for land acquisition opportunities. We also compete
with the resale of existing homes and rental homes. An oversupply of
attractively priced resale or rental homes in the markets in which we operate
could adversely affect our ability to sell homes profitably. Our mortgage
lending operations are subject to intense competition from other mortgage
lenders, many of which are substantially larger and may have a lower cost of
funds or effective overhead burden than our lending operations.
Risk of Material and Labor Shortages
The residential construction industry has from time to time experienced
serious material and labor shortages, including shortages in insulation,
drywall, cement and lumber. These labor and material shortages can be more
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severe during periods of strong demand for housing. Some of these materials,
including lumber, cement and drywall in particular, have experienced volatile
price swings. Similar shortages and price increases in the future could cause
delays in and increase our costs of home construction which in turn would harm
our operating results.
We Are Subject to Extensive Government Regulation
Our homebuilding operations are subject to environmental, building, worker
health and safety, zoning and real estate regulations by various federal,
state and local authorities. These regulations, which affect all aspects of
the homebuilding process, including development, design, construction and
sales, can substantially delay or increase the costs of homebuilding
activities. In addition, regulations, such as those governing environmental
and health matters, may prohibit or severely restrict homebuilding activity in
environmentally sensitive regions.
New housing developments, particularly in California where a significant
portion of our business is conducted, may be subject to various assessments
for schools, parks, streets, highways and other public improvements. The costs
of these assessments can be substantial and can cause increases in the
effective prices of our homes, which in turn could reduce our sales.
During the development process, we must obtain the approval of numerous
governmental authorities which regulate matters such as:
. permitted land uses, levels of density and architectural designs;
. the installation of utility services, such as water and waste disposal;
and
. the dedication of acreage for open space, parks, schools and other
community services.
The approval process can be lengthy and cause significant delays in the
development process. In addition, changes in local circumstances or laws may
require additional approvals or modifications to approvals previously
obtained, which can result in further delays. Delays in the development
process can cause substantial increases to development costs, which in turn
could harm our operating results. There can be no assurance that we will be
successful in securing approvals for all of the land we currently control.
Our mortgage banking operations are subject to numerous federal, state and
local laws and regulations, including eligibility requirements for
participation in federal loan programs. Our title insurance agency subsidiary
is subject to applicable insurance laws and regulations. Failure to comply
with these requirements can lead to administrative enforcement actions, the
loss of required licenses and claims for monetary damages.
Risk of Adverse Weather Conditions and Natural Disasters
We are subject to the risks associated with adverse weather conditions and
natural disasters which occur in our markets, including:
. unusually heavy or prolonged precipitation;
. earthquakes;
. fires;
. floods; and
. landslides.
These conditions can negatively affect our operations by requiring us to
delay or halt construction or to perform potentially costly repairs to our
projects under construction and unsold homes. In addition, California has
periodically experienced drought conditions which result in water conservation
measures and sometimes rationing by municipalities in which we do business.
Restrictions by governmental agencies on construction activity as a result of
limited water supplies could harm our operating results.
9
We are Subject to Product Liability and Warranty Claims Arising in the
Ordinary Course of Business
As a homebuilder, we are subject to construction defect and home warranty
claims arising in the ordinary course of business. These claims are common in
the homebuilding industry and can be costly. While we maintain product
liability insurance and generally seek to require our subcontractors and
design professionals to indemnify us and name us as an additional insured for
liabilities arising from their work, there can be no assurance that these
indemnities and insurance rights will be adequate to cover all construction
defect and warranty claims for which we may be liable. For example,
contractual indemnities can be difficult to enforce and certain claims may not
be covered by insurance or may exceed applicable coverage limits.
Additionally, at certain times in past years the coverage offered by and
availability of product liability insurance for construction defects has been
limited, and there can be no assurance that adequate insurance at acceptable
prices will continue to be available.
We Need to Integrate our Recently Acquired Subsidiary, The Writer Corporation
If we are not able to effectively integrate the operations, technology and
personnel of The Writer Corporation in a timely and efficient manner, then we
will not realize the benefits we expect from the merger. In particular, if the
integration is not successful:
. our costs may be higher relative to our revenues than they were before
the merger;
. the combined company may lose key personnel; and
. we may not be able to retain or expand The Writer Corporation's market
position.
Integrating the operations of The Writer Corporation may be difficult, time
consuming and costly. Among the challenges involved in this integration are
demonstrating to our customers and business partners that the merger will not
result in an adverse change in product quality, customer service standards or
business focus, training personnel in new operating procedures and
implementing a new data processing system. In addition, The Writer Corporation
is engaged in locations in which we have not previously had operations, and
therefore to successfully integrate the operations, we will need to retain
management, key employees, and business partners of The Writer Corporation.
The attention and effort devoted to the integration may also significantly
divert our management's attention from other important issues.
Our Significant Amount of Debt Could Harm our Financial Health
We currently have a significant amount of debt. As of December 31, 2000,
our total consolidated indebtedness was $424.4 million (excluding indebtedness
relating to our mortgage banking operations and trade payables). In addition,
subject to the restrictions in our revolving credit facility and public notes
indentures, we may incur additional indebtedness in the future. Our
indebtedness could have important consequences such as:
. requiring us to dedicate a substantial portion of our cash flows from
operations to payments on our debt;
. limiting our ability to obtain future financing for working capital,
capital expenditures, acquisitions and other general corporate
requirements;
. making us more vulnerable to general adverse economic and industry
conditions;
. limiting our flexibility in planning for, or reacting to, changes in our
business and the homebuilding industry; and
. putting us at a disadvantage compared to competitors who have less debt.
We Are Dependent on the Performance of our Senior Management
Our success is dependent upon the management and the leadership skills of
members of our senior management. The loss of any of these individuals or an
inability to attract, retain and maintain additional qualified personnel could
adversely affect us. There can be no assurance that we will be able to retain
our existing senior management personnel or attract additional qualified
personnel.
10
Employees
At December 31, 2000, we had approximately 949 employees. None of our
employees are covered by collective bargaining agreements.
During the past five years, we have not directly experienced a work
stoppage in our operations caused by labor disputes with our employees.
However, construction of homes in our projects has, from time to time, been
delayed due to strikes by certain construction unions against subcontractors
retained by us or suppliers of materials used in the construction of our
homes. Such delays have not had a significant adverse effect on our
operations.
We believe that our relations with our employees and subcontractors are
satisfactory.
ITEM 2. PROPERTIES
In addition to real estate held for development and sale, we lease office
facilities for our corporate, real estate and financing operations. The
following table summarizes our principal leased facilities at December 31,
2000 (except as otherwise indicated in footnote 4 below):
Square Feet of Lease
Location Floor Space Expiration
-------- -------------- ----------
Costa Mesa, CA (1)................................. 52,181 2002
Irvine, CA (2)..................................... 32,621 2010
Newport Beach, CA (3).............................. 9,312 2005
Pleasanton, CA..................................... 8,488 2002
Campbell, CA (4)................................... 8,840 2005
Westlake Village, CA............................... 6,277 2002
Carlsbad, CA....................................... 10,203 2006
San Diego, CA (5).................................. 8,012 2002
Temecula, CA....................................... 4,711 2001
Scottsdale, AZ..................................... 12,731 2006
Irving, TX......................................... 8,666 2002-2004
Austin, TX......................................... 4,184 2002
Houston, TX........................................ 8,585 2004
Englewood, CO...................................... 13,928 2004
Loveland, CO ...................................... 2,594 2004
- --------
(1) We have subleased this facility to two unrelated third parties through the
end of the lease term.
(2) This facility serves as our corporate and Orange County divisional
offices.
(3) This facility is used for Family Lending's offices.
(4) The South Bay office of our Northern California division moved into this
facility in February 2001. The lease for its previous facility expired at
this time.
(5) We have subleased this facility to an unrelated third party through the
end of the lease term.
We believe that all of our properties are currently satisfactory for the
purposes for which they are used.
ITEM 3. LEGAL PROCEEDINGS
Various claims and actions which we consider normal to our business have
been asserted and are pending against us. We do not believe that such claims
and actions will have a material adverse effect upon our results of operations
or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
EXECUTIVE OFFICERS OF THE COMPANY
Our executive officers' ages, positions, and brief accounts of their
business experience as of March 1, 2001, are set forth below.
Name Age Position
---- --- --------
Arthur E. Svendsen.................. 77 Chairman of the Board
Stephen J. Scarborough.............. 52 President and Chief Executive
Officer; Director
Michael C. Cortney.................. 53 Executive Vice President; Director
Andrew H. Parnes.................... 42 Senior Vice President--Finance,
Treasurer and Chief Financial Officer
Clay A. Halvorsen................... 41 Senior Vice President, General
Counsel and Secretary
Jari L. Kartozian................... 42 Vice President
Arthur E. Svendsen has served as the Chairman of the Board since 1961. Mr.
Svendsen served as Chief Executive Officer from 1961 until December 1999.
Stephen J. Scarborough has served as Chief Executive Officer since January
2000 and as President since October 1996. Mr. Scarborough has been a Director
since 1996. From January 1996 until October 1996, Mr. Scarborough served as
Executive Vice President. Prior to this and since 1981, Mr. Scarborough was
President of our Orange County, California homebuilding division.
Michael C. Cortney has served as Executive Vice President since January
2000 and was appointed to the Board of Directors in May 2000. Mr. Cortney
served as Senior Vice President from January 1998 until December 1999. From
1985 until August 2000, Mr. Cortney also served as the President of our
Northern California homebuilding division.
Andrew H. Parnes has served as Senior Vice President--Finance since January
2001 and as Vice President--Finance prior to this and since January 1997. In
addition, he has served as our Chief Financial Officer since July 1996 and as
our Treasurer since January 1991. From December 1989 until July 1996, Mr.
Parnes served as our Controller.
Clay A. Halvorsen has served as Senior Vice President, General Counsel and
Secretary since January 2001 and as Vice President, General Counsel and
Secretary prior to this and since January 1998. Prior to joining Standard
Pacific, Mr. Halvorsen was a partner in the law firm of Gibson, Dunn &
Crutcher LLP.
Jari L. Kartozian has served as Vice President since January 2000. Ms.
Kartozian served as Senior Vice President Sales and Marketing of our Orange
County, California homebuilding division from September 1998 to December 1999
and as Vice President Sales and Marketing of this division prior to this and
since August 1991. Ms. Kartozian joined Standard Pacific in 1981.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our shares of common stock are listed on the New York Stock Exchange and
Pacific Stock Exchange. The following table sets forth, for the fiscal
quarters indicated, the reported high and low sales prices of the common
shares as reported on the New York Stock Exchange Composite Tape and the
amount of common dividends paid.
Year Ended December 31,
--------------------------------------------
2000 1999
--------------------- ----------------------
Quarter Ended High Low Dividend High Low Dividend
------------- ------ ----- -------- ------ ------ --------
March 31........................ $11.25 $8.94 $.08 $15.19 $11.63 $.05
June 30......................... 11.81 9.31 .08 15.00 12.13 .05
September 30.................... 18.25 10.06 .08 14.13 10.00 .05
December 31..................... 27.38 15.50 .08 12.94 8.88 .05
As of March 1, 2001, the number of record holders of common stock was
1,237.
12
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
Revenues:
Homebuilding........... $1,317,995 $1,198,831 $ 759,612 $ 584,571 $ 399,863
Financial Services..... 3,410 2,257 1,403 171 --
---------- ---------- ---------- ---------- ----------
Total revenues........ $1,321,405 $1,201,088 $ 761,015 $ 584,742 $ 399,863
========== ========== ========== ========== ==========
Pretax Income:
Homebuilding........... $ 165,973 $ 114,058 $ 81,319 $ 40,937 $ 12,948
Financial Services..... 174 5 (425) 109 --
---------- ---------- ---------- ---------- ----------
Pretax income from
continuing operations
before extraordinary
charge............... $ 166,147 $ 114,063 $ 80,894 $ 41,046 $ 12,948
========== ========== ========== ========== ==========
Income from continuing
operations before
extraordinary charge... $ 100,142 $ 67,571 $ 47,404 $ 23,976 $ 7,751
Income (loss) from
discontinued
operations, net of
income taxes........... -- (159) (199) 48 642
Gain on disposal of
discontinued
operations, net of
income taxes........... -- 618 -- 3,302 --
Extraordinary charge
from early
extinguishment of debt,
net of income taxes.... -- -- (1,328) -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 100,142 $ 68,030 $ 45,877 $ 27,326 $ 8,393
========== ========== ========== ========== ==========
Basic Net Income Per
Share:
Income per share from
continuing
operations............ $ 3.43 $ 2.28 $ 1.59 $ 0.82 $ 0.26
Income (loss) per share
from discontinued
operations............ -- (0.01) (0.01) -- 0.02
Gain per share on
disposal of
discontinued
operations............ -- 0.02 -- 0.11 --
Extraordinary charge
per share from early
extinguishment of
debt.................. -- -- (0.04) -- --
---------- ---------- ---------- ---------- ----------
Net income per share... $ 3.43 $ 2.29 $ 1.54 $ 0.93 $ 0.28
========== ========== ========== ========== ==========
Weighted average common
shares outstanding.... 29,236,125 29,597,669 29,714,431 29,504,477 30,000,492
========== ========== ========== ========== ==========
Diluted Net Income Per
Share:
Income per share from
continuing
operations............ $ 3.39 $ 2.27 $ 1.58 $ 0.81 $ 0.26
Income (loss) per share
from discontinued
operations............ -- (0.01) (0.01) -- 0.02
Gain per share on
disposal of
discontinued
operations............ -- 0.02 -- 0.11 --
Extraordinary charge
per share from early
extinguishment of
debt.................. -- -- (0.04) -- --
---------- ---------- ---------- ---------- ----------
Net income per share... $ 3.39 $ 2.28 $ 1.53 $ 0.92 $ 0.28
========== ========== ========== ========== ==========
Weighted average common
and diluted shares
outstanding........... 29,562,230 29,795,263 30,050,078 29,807,702 30,011,595
========== ========== ========== ========== ==========
Stockholders' equity per
share.................. $ 16.17 $ 13.07 $ 10.96 $ 9.58 $ 8.79
Cash dividends declared
per share.............. $ 0.32 $ 0.20 $ 0.17 $ 0.14 $ 0.12
Total assets............ $1,118,786 $ 829,968 $ 866,362 $ 547,665 $ 449,114
Long-term debt--
continuing operations.. $ 424,351 $ 321,847 $ 404,806 $ 194,305 $ 80,000
Stockholders' equity.... $ 486,230 $ 381,885 $ 324,679 $ 283,778 $ 260,389
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the section "Selected Financial Data" and our consolidated financial
statements and the related notes included elsewhere in this Form 10-K.
Results of Operations
Selected Financial Information
Year Ended December 31,
--------------------------------
2000 1999 1998
---------- ---------- --------
(Dollars in thousands)
Homebuilding:
Revenues.................................. $1,317,995 $1,198,831 $759,612
Cost of sales............................. 1,057,827 986,793 618,448
---------- ---------- --------
Gross margin............................ 260,168 212,038 141,164
---------- ---------- --------
Gross margin percentage................. 19.7% 17.7% 18.6%
---------- ---------- --------
Selling, general and administrative
expenses................................. 105,141 99,971 61,691
Income from unconsolidated joint
ventures................................. 16,478 6,201 4,158
Interest expense.......................... 3,599 1,519 1,168
Amortization of excess of cost over net
assets acquired.......................... 2,100 1,979 1,312
Other income (expense).................... 167 (712) 168
---------- ---------- --------
Homebuilding pretax income.............. 165,973 114,058 81,319
---------- ---------- --------
Financial Services:
Revenues.................................. 3,410 2,257 1,403
Expenses.................................. 4,265 3,140 1,828
Income from unconsolidated joint
ventures................................. 718 783 --
Other income.............................. 311 105 --
---------- ---------- --------
Financial services pretax income
(loss)................................. 174 5 (425)
---------- ---------- --------
Income from continuing operations before
income taxes and extraordinary charge...... $ 166,147 $ 114,063 $ 80,894
========== ========== ========
Operating Data
Year Ended December 31,
--------------------------------
2000 1999 1998
---------- ---------- --------
New homes delivered:
Southern California....................... 1,367 1,173 1,119
Northern California....................... 865 1,020 516
---------- ---------- --------
Total California........................ 2,232 2,193 1,635
---------- ---------- --------
Texas..................................... 546 459 465
Arizona................................... 797 802 188
Colorado.................................. 141 -- --
---------- ---------- --------
Consolidated total........................ 3,716 3,454 2,288
Unconsolidated joint ventures (Southern
California).............................. 155 18 40
---------- ---------- --------
Total................................... 3,871 3,472 2,328
========== ========== ========
Average selling price:
California deliveries (excluding joint
ventures)................................ $ 443,371 $ 436,285 $381,534
Texas deliveries.......................... $ 287,221 $ 239,930 $215,458
Arizona deliveries........................ $ 164,207 $ 159,958 $161,649
Colorado deliveries....................... $ 271,909 $ -- $ --
Consolidated deliveries (excluding joint
ventures)................................ $ 354,047 $ 346,030 $329,714
Unconsolidated joint venture deliveries
(Southern California).................... $ 553,550 $ 484,650 $344,678
14
Operating Data--(continued)
Year Ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------
Net new orders:
Southern California.............................. 1,439 1,138 1,226
Northern California.............................. 967 946 612
-------- -------- --------
Total California............................... 2,406 2,084 1,838
-------- -------- --------
Texas............................................ 661 466 466
Arizona.......................................... 887 761 165
Colorado......................................... 140 -- --
-------- -------- --------
Consolidated total............................... 4,094 3,311 2,469
Unconsolidated joint ventures (Southern
California)..................................... 156 64 13
-------- -------- --------
Total.......................................... 4,250 3,375 2,482
======== ======== ========
Average selling communities during the year:
Southern California.............................. 21 21 17
Northern California.............................. 13 15 11
Texas............................................ 26 18 18
Arizona.......................................... 15 11 9
Colorado......................................... 5 -- --
Unconsolidated joint ventures (Southern
California)..................................... 3 1 2
-------- -------- --------
Total.......................................... 83 66 57
======== ======== ========
At December 31,
--------------------------
2000 1999 1998
-------- -------- --------
Backlog (in units):
Southern California.............................. 414 342 377
Northern California.............................. 275 173 247
-------- -------- --------
Total California............................... 689 515 624
-------- -------- --------
Texas............................................ 241 126 119
Arizona.......................................... 417 327 368
Colorado......................................... 148 -- --
-------- -------- --------
Consolidated total............................... 1,495 968 1,111
Unconsolidated joint ventures (Southern
California)..................................... 47 46 --
-------- -------- --------
Total.......................................... 1,542 1,014 1,111
======== ======== ========
Backlog at year end (estimated dollar value in
thousands)........................................ $542,693 $326,101 $359,959
======== ======== ========
Building sites owned or controlled:
California....................................... 8,845 8,360 8,587
Texas............................................ 2,650 2,427 2,298
Arizona.......................................... 3,380 3,956 2,984
Colorado......................................... 2,238 -- --
-------- -------- --------
Total.......................................... 17,113 14,743 13,869
======== ======== ========
Completed and unsold homes......................... 125 167 136
======== ======== ========
Homes under construction........................... 1,946 1,455 1,491
======== ======== ========
15
Fiscal Year 2000 Compared to Fiscal Year 1999
Income from continuing operations for the year ended December 31, 2000
increased 48 percent to a record $100.1 million, or $3.39 per diluted share,
compared to $67.6 million, or $2.27 per diluted share, in 1999. The improved
operating performance primarily reflects our position as one of the leading
builders in the strong California housing market coupled with earnings gains
in Arizona and Texas. Net income including discontinued operations increased
47 percent to $100.1 million, or $3.39 per diluted share, for the year ended
December 31, 2000, compared to $68.0 million, or $2.28 per diluted share, in
1999. The discontinued operations reflect our former savings and loan
subsidiary, which was sold in May 1999 for an after tax gain of $618,000, or
$0.02 per diluted share. (See "--Discontinued Operations" for further
discussion of the discontinued operating segment.)
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
for 2000 increased 35 percent to $197.9 million compared to $147.0 million in
1999.
On August 25, 2000, we acquired The Writer Corporation, a publicly traded
Denver-based homebuilder ("Writer"), for a purchase price of $3.35 per share
of Writer common stock, or a total of approximately $26 million (excluding
transaction costs), plus the assumption of approximately $37.5 million of
indebtedness. The acquisition consideration was paid in a combination of cash,
totaling approximately $10.2 million, and 1,159,398 shares of Standard Pacific
common stock. The cash component of the acquisition was financed under our
unsecured revolving credit facility. With this acquisition, we purchased or
assumed the rights to acquire approximately 2,000 single-family lots located
in the Denver and Fort Collins areas, which included 11 active subdivisions at
the close of the transaction. In addition, we acquired a backlog of 149 pre-
sold homes and retained Writer's management team and staff.
Homebuilding
Homebuilding pretax income was up 46 percent to $166.0 million for the year
ended December 31, 2000, compared to $114.1 million in the prior year. The
higher level of income was primarily attributable to a 200 basis point
improvement in the homebuilding gross margin percentage, a 10 percent rise in
homebuilding revenues and a $10.3 million increase in joint venture income.
Homebuilding revenues for the year ended December 31, 2000 reached a record
$1.32 billion, a 10 percent increase over the $1.20 billion level achieved in
1999. The higher revenue total was due to an 8 percent increase in deliveries
to 3,716 new homes (exclusive of joint ventures) and a 2 percent increase in
the average home selling price to $354,000. In California we delivered 2,387
new homes in 2000 compared to 2,211 in the prior year, an 8 percent increase.
Deliveries were up 28 percent in Southern California, but were down 15 percent
in Northern California due primarily to a 13 percent decline in the number of
active selling communities during the year. Deliveries in Texas were up 19
percent to 546 new homes, while deliveries in Arizona totaled 797 new homes
and were in line with the prior year level. Our new Colorado division
delivered 141 new homes from the date of acquisition (August 25, 2000) through
December 31, 2000.
The average home price in California was up 2 percent to $443,000,
reflecting general price appreciation offset in part by a change in product
mix to lower priced homes. In Texas, the average home price was up 20 percent
to $287,000 reflecting the delivery of larger, more expensive homes and, to a
lesser degree, general price appreciation experienced in the Austin market.
The average home price in Arizona was up 3 percent from the prior year to
$164,000 due primarily to changing product mix. The average selling price in
Colorado during 2000 was $272,000. We anticipate that the consolidated average
home price will increase approximately 10 percent for the 2001 first quarter
compared to the same period in 2000, and be modestly lower for the full year
2001 compared to 2000 due to the delivery of more homes in Texas, Arizona and
Colorado.
The homebuilding gross margin percentage for the year was up 200 basis
points to 19.7 percent compared to 17.7 percent in 1999. The significant
increase in the gross margin percentage was driven principally by a jump in
California margins. Home prices in California continued to climb due to strong
housing demand while labor
16
and material costs were relatively stable during 2000. Texas and Arizona gross
margins were up modestly over the prior year level while gross margins in
Colorado were below the consolidated average due to the effects of purchase
accounting adjustments recorded in connection with the Writer acquisition.
Selling, general and administrative expenses were 8.0 percent of
homebuilding revenues, down from 8.3 percent in the previous year. The decline
in S,G&A expenses as a percentage of homebuilding revenues was primarily the
result of a higher revenue base during 2000 and the fixed nature of certain
general and administrative expenses which was offset in part by costs
associated with opening more new communities during 2000 than in 1999.
Income from unconsolidated joint ventures in 2000 was generated from the
delivery of 155 homes from our three-project joint venture in Fullerton,
California in Orange County and a $5.1 million gain on the sale of an adjacent
parcel of land. We are expecting this venture to deliver approximately 35
homes in the first quarter of 2001 and approximately 200 homes for the full
2001 year. We expect to commence selling activities in the second quarter of
2001 at our first active adult development, a 275 home, three-project joint
venture in the Talega master planned community in San Clemente, California.
Deliveries are expected to begin in the second half of 2001 and could total
approximately 125 homes for fiscal 2001. In addition, we expect to begin
delivering homes in the 2001 third quarter from an 82 home joint venture in
the City of San Francisco. Deliveries from this venture could total 35 new
homes in 2001. Additional land sales from the Talega land development joint
venture are also planned for 2001.
Amortization of excess of cost over net assets acquired for 2000 reflects a
slight increase over the prior year as it includes approximately four months
of amortization related to the Colorado acquisition which closed during the
2000 third quarter.
Net new orders for 2000 were up 26 percent over the prior year to a record
4,250 new homes on a 26 percent increase in average community count. Orders
were up 33 percent in Southern California on a 9 percent increase in community
count, up 2 percent in Northern California on a 13 percent decline in
community count, up 42 percent in Texas on a 44 percent increase in community
count and up 17 percent in Arizona on a 36 percent higher community count. Net
new orders in Colorado totaled 140 homes for the period from the closing of
the Colorado acquisition on August 25, 2000 through December 31, 2000. The
strong order levels during the year contributed to an increase in our year end
backlog to 1,542 presold homes with an estimated sales value of $543 million,
up 66 percent from the backlog value at December 31, 1999.
For the year ended December 31, 2000, we opened 55 new communities, versus
43 in 1999. For fiscal 2001, we currently anticipate opening approximately 60
new communities, of which approximately 37 are expected to be located in
California, 5 in Texas, 9 in Arizona and 9 in Colorado. During 2001 we expect
the number of active selling communities to fluctuate between 90 and 120
subdivisions, versus 71 and 92 for 2000. The average community count for 2001
is expected to be up approximately 25 to 30 percent over the 2000 average
community count level.
Financial Services
Revenues from our financial services subsidiary increased 51 percent over
the prior year. The higher revenue total was driven by a 74 percent increase
in the dollar volume of loans sold during the year. The increase in loan
volume is due to higher capture rates achieved by our subsidiary as it
expanded its operations to include substantially all of our new communities in
California and, to a lesser extent, from higher new home sales. The higher
rate of increase in loan sales relative to revenues primarily reflects the
extremely competitive mortgage lending market during much of 2000 which
resulted in lower yields on loan sales. In addition, 1999 revenues reflect a
one-time gain that was recognized from the pay-off of a commercial loan. The
rise in operating expenses in 2000 compared to 1999 reflects the growth of our
mortgage banking operations in California.
The financial services joint venture income reflects the operating results
of SPH Mortgage, our mortgage banking joint venture in Arizona and Texas with
Wells Fargo Home Mortgage, and WRT Financial, our mortgage banking joint
venture in Colorado.
17
Other financial services income represents earnings from our title
insurance operation in Texas, which began serving as a title insurance agent
and offering title examination services in September 1999.
Fiscal Year 1999 Compared to Fiscal Year 1998
Income from continuing operations before an extraordinary charge for the
year ended December 31, 1999 increased 43 percent to $67.6 million, or $2.27
per diluted share compared to $47.4 million, or $1.58 per diluted share, in
1998. The improved operating performance primarily reflects the strong
California housing market conditions in 1999 and improved operating results in
Dallas and Austin. In addition, 1999 reflects a full year of operations from
our Arizona division, which we acquired in August 1998.
Net income including discontinued operations and the extraordinary charge
for the year ended December 31, 1999 increased 48 percent to $68.0 million, or
$2.28 per diluted share, compared to $45.9 million, or $1.53 per diluted
share, in 1998. The discontinued operations reflect our former savings and
loan subsidiary. The 1998 extraordinary charge represents an after tax loss of
$1.3 million, or $0.04 per diluted share, recognized in connection with the
early extinguishment of approximately $39 million of our 10 1/2% Senior Notes.
(See "--Discontinued Operations" for further discussion of the discontinued
operating segment.)
EBITDA for 1999 increased 33 percent to $147.0 million compared to $110.8
million in 1998.
Homebuilding
Homebuilding revenues for the year ended December 31, 1999 surpassed the $1
billion level for the first time, increasing 58 percent to $1.20 billion from
$759.6 million in 1998. The higher revenue total was due to a 51 percent
increase in deliveries (exclusive of joint ventures) to 3,454 new homes,
coupled with a 5 percent increase in the average home selling price to
$346,000. In California we delivered 2,211 new homes, up 32 percent over 1998,
with our Northern and Southern California operations both topping 1,000
deliveries for the first time. Northern California deliveries were up 98
percent over 1998 due, in part, to a 36 percent increase in new communities,
many of which were acquired in connection with our 1997 acquisition of Duc
Development Company. In Southern California, deliveries were up 5 percent on a
16 percent higher community count. Southern California revenues rose 34
percent over 1998 levels, due to the increase in deliveries and a 28 percent
higher average home selling price of $475,000. Our Arizona division delivered
802 new homes in its first full year of operations compared to 188 homes
delivered in the last four months of 1998. Overall, Texas deliveries were in
line with 1998 results.
The average home price in California increased 14 percent to $436,000. The
higher home price reflects both the delivery of larger, more expensive homes,
particularly in Southern California, and general price appreciation from the
strong housing demand in the state during the year. In Texas, the average home
price was up 11 percent to $240,000 reflecting a greater distribution of
deliveries from our Dallas and Austin operations. The average home price of
$160,000 in Arizona remained relatively consistent with the 1998 average
price.
The gross margin percentage for 1999 was down 90 basis points to 17.7
percent compared to 18.6 percent in 1998. The decline in the gross margin
percentage was primarily attributable to higher land and labor costs in
California which was a result of the state's strong housing market and, to a
lesser degree, increased deliveries in Arizona and Texas where margins are
typically lower than in California.
Selling, general and administrative expenses as a percentage of revenues
were up slightly in 1999 to 8.3 percent from 8.1 percent in 1998. The increase
in these expenses as a percentage of revenues is primarily due to the timing
of certain sales and marketing costs incurred in connection with the opening
of new communities. During 1999 we opened 43 new communities compared to 27
new openings in 1998.
Income generated from unconsolidated joint ventures in 1999 totaled $6.2
million compared to $4.2 million in 1998. The 1999 income primarily reflects
lot sales from our Talega land development joint venture in south
18
Orange County with Catellus and Starwood Capital. In addition, during the 1999
fourth quarter we began delivery of homes from our joint venture in Fullerton,
California. The venture delivered 18 of a planned 390 new homes from three
different projects.
Amortization of excess of cost over net assets acquired for 1999 reflects
full year charges for both the 1997 Northern California acquisition, as well
as the 1998 Arizona acquisition. The amortization for 1998 reflects only four
months of amortization for the Arizona acquisition.
Net new orders for 1999 were up 36 percent over 1998 orders to 3,375 new
homes on a 16 percent increase in average community count. Orders were up 55
percent in Northern California on a 36 percent increase in community count,
while orders declined 3 percent in Southern California on a 16 percent
increase in community count. The decline in Southern California orders was
attributable, in large part, to a shift to higher priced homes which generally
sell at a lower sales rate than less expensive homes. However, net new orders
in Southern California were up 69 percent in the 1999 fourth quarter on a 56
percent increase in active selling communities. In Texas, orders were in line
with the 1998 total on an unchanged community count. Orders in Dallas were up
22 percent on a 27 percent higher community count, while orders in Houston
were down 42 percent on a 29 percent lower community count. Arizona generated
761 orders in its first full year of operations versus 165 net new orders for
the last four months of 1998.
Financial Services
Revenues from our financial services subsidiary during 1999 increased 61
percent over fiscal 1998 levels due to an increase in the number of mortgage
loans sold. The higher level of loan sales is attributable to the growth of
our mortgage lending operations in California during 1999. This growth also
led to an increase in operating expenses.
The financial services joint venture income reflects the operating results
of our mortgage banking venture with Wells Fargo Home Mortgage in Arizona and
Texas.
Other financial services income represents earnings from our title
insurance operation in Texas.
Inventory Carrying Costs and Inventory Turnover Ratio
December 31,
--------------------------------
2000 1999 1998
---------- ---------- ----------
(Dollars in millions)
Capitalized interest in inventory and
interest as a percentage of total
inventories................................. $23.6 2.8% $21.4 3.1% $15.2 2.1%
Average inventory balance.................... $771 $706 $583
Cost of sales for the year then ended........ $1,058 $987 $618
Ratio of cost of sales to average inventory
balance (inventory turn ratio).............. 1.37x 1.40x 1.06x
The 2000 inventory turn ratio of 1.37 remained relatively consistent with
the prior year ratio of 1.40. The nominal decline in the ratio was primarily
attributable to an increase in average inventory related to our newly formed
Southern California Inland Empire division and our recent Colorado
acquisition. The impact of the higher level of inventories was partially
offset by an 8 percent increase in 2000 new home deliveries (exclusive of
joint ventures) over the prior year. Calculating the inventory turn ratio
without the Inland Empire and Colorado balances the ratio would have increased
to 1.48 in 2000 versus 1.40 in 1999. The higher turn primarily reflects the
strong California housing market in 2000 combined with the increased use of
joint venture structures for larger, longer-term projects. Additionally, Texas
deliveries were up 19 percent in 2000, which also positively impacted our
inventory turn ratio.
19
The 1999 inventory turn ratio increased to 1.40 from 1.06 in 1998. This
improvement was primarily attributable to a 51 percent increase in new home
deliveries in 1999 while the average inventory balance was up only 21 percent
over the 1998 level. The increase in the inventory turn ratio was due
primarily to the strong housing market in California during 1999.
Capitalized interest as a percentage of ending inventories declined from
3.1 percent at the end of 1999 to 2.8 percent at the end of 2000. The lower
level of carrying costs as a percentage of ending inventories is primarily
attributable to our faster inventory turn ratio.
Capitalized interest in real estate inventories at December 31, 1999 was
3.1 percent of ending inventory, compared to 2.1 percent of ending inventory
at the end of 1998. This increase in capitalized interest in 1999 can be
attributed, in part, to the rise in the number of active communities under
development during 1999, combined with a greater proportion of fixed-rate debt
versus variable rate debt in 1999. Generally, fixed-rate debt, which is
longer-term in duration, bears a higher interest rate than shorter-term
variable rate debt.
Discontinued Operations
Disposition of Standard Pacific Savings. In May 1997, our Board of
Directors adopted a plan of disposition (the "Plan") for our savings and loan
subsidiary ("Savings"). Pursuant to the Plan, we sold substantially all of
Savings' mortgage loan portfolio in June 1997. The proceeds from the sale of
the mortgages were used to pay off substantially all of the outstanding
balances of Federal Home Loan Bank advances with the remaining amount
temporarily invested until the savings deposits were sold along with Savings'
remaining assets. The gain generated from the sale of this mortgage loan
portfolio, net of related expenses, was not material. In August 1998, we
entered into a definitive agreement to sell the remainder of Savings'
business, including Savings' charter, which closed in May 1999, and resulted
in an after tax gain of $618,000, or $0.02 per diluted share, which is
reflected in the accompanying consolidated statements of income. Proceeds from
the sale of Savings were approximately $8.8 million before transaction and
other related costs. Savings has been accounted for as a discontinued
operation and the results of its operations have been segregated in the
accompanying consolidated financial statements included elsewhere in this Form
10-K.
Liquidity and Capital Resources
Our homebuilding operations' principal uses of cash have been for operating
expenses, land acquisitions, construction expenditures, market expansion
(including through acquisitions), principal and interest payments on debt,
share repurchases and dividends to our shareholders. Cash requirements have
been provided from internally generated funds and outside borrowings,
including our bank revolving credit facility and public note offerings. Our
mortgage banking subsidiary uses cash from internally generated funds and a
mortgage warehouse credit facility to fund its mortgage lending operations.
Based on our current business plan and our desire to carefully manage our
leverage, we believe that these sources of cash, together with equity or
equity-related capital sources, are sufficient to finance our current working
capital requirements and other needs.
In September 2000, we amended our $450 million unsecured revolving credit
facility with our bank group to, among other things, extend the maturity date
one year to July 31, 2004 and revise certain financial and other covenants.
Additionally, the amended credit facility contains an option which allows us
to increase the total aggregate commitment up to $475 million subject to the
approval of the agent bank. This agreement also contains a borrowing base
provision and financial covenants which may limit the amount we may borrow
under the revolving credit facility. At December 31, 2000, we had no
borrowings outstanding and had issued approximately $23.6 million of letters
of credit under this facility.
To fund mortgage loans originated by our financial services subsidiary, we
have a $40 million revolving mortgage warehouse credit facility with a bank.
In December 2000, the commitment under this facility was temporarily increased
to $55 million through January 31, 2001 to accommodate the increase in loan
volume
20
activity at year end. Presold mortgage loans are warehoused for a short period
of time (typically for 15 to 30 days) while the investor completes its
administrative review of the applicable loan documents. Loans originated on a
non-presold basis are typically warehoused for 15 to 60 days before sale to
third party investors. Borrowings under the warehouse facility, which are
LIBOR based, are secured by the related mortgage loans held for sale. The
facility, which has a current maturity date of May 29, 2001, also contains
certain financial covenants. At December 31, 2000, we had borrowings of $45.3
million outstanding under this facility.
In January 2001, the Securities and Exchange Commission declared effective
our $425 million universal shelf registration statement on Form S-3. The
universal shelf registration statement, which supercedes our previous shelf,
permits the issuance from time to time of common stock, preferred stock, debt
securities and warrants. We currently have the full amount available under
this universal shelf (excluding approximately $32.7 million of common stock
registered on behalf of potential selling stockholders).
In September 2000, we utilized a portion of our previous universal shelf
and issued $125 million of 9 1/2% Senior Notes which mature on September 15,
2010. These notes, which were issued at par, are unsecured obligations and
rank equally with our other existing senior unsecured indebtedness. The notes
are redeemable at our option, in whole or in part, commencing September 15,
2005 at 104.75 percent of par, with the call price reducing ratably to par on
September 15, 2008. Net proceeds after underwriting expenses were
approximately $123.1 million and were used to repay a portion of the balance
outstanding under our revolving credit facility. We will, under certain
circumstances, be obligated to make an offer to purchase a portion of these
notes in the event of certain asset sales. In addition, these notes contain
other restrictive covenants which, among other things, impose certain
limitations on our ability to (1) incur additional indebtedness, (2) create
liens, (3) make restricted payments, and (4) sell assets. In addition, upon a
change in control we are required to make an offer to purchase these notes.
From time to time, purchase money mortgage financing is used to finance
land acquisitions. At December 31, 2000, we had approximately $393,000
outstanding under trust deed notes payable.
As a form of off balance sheet financing and for other strategic purposes,
joint venture structures are used on selected projects. This type of
structure, which typically obtains secured construction and development
financing, minimizes the use of funds from our revolving credit facility and
other corporate financing sources. We plan to continue using these types of
arrangements to finance the development of properties as opportunities arise.
At year end these joint ventures had borrowings which totaled approximately
$115 million. If the market value of the properties in certain of these joint
ventures declines, we may be required to make capital contributions to these
ventures to reduce amounts borrowed under secured construction loans.
We paid approximately $9.3 million, or $0.32 per common share, in dividends
to our stockholders during the year ended December 31, 2000. Common stock
dividends are paid at the discretion of our Board of Directors and are
dependent upon various factors, including earnings, cash flows, capital
requirements and operating and financial conditions, including our overall
level of leverage. Additionally, our revolving credit facility and public
notes impose restrictions on the amount of dividends we may be able to pay. On
January 25, 2001, our Board of Directors declared a quarterly cash dividend of
$0.08 per share of common stock. This dividend was paid on February 25, 2001
to shareholders of record on February 11, 2001.
During the year ended December 31, 2000, we issued 233,816 shares of common
stock pursuant to the exercise of stock options for total consideration of
approximately $2.5 million.
In April 2000, our Board of Directors increased the aggregate stock
repurchase limit of our previously announced stock buyback plan from $25
million to $35 million. During the year ended December 31, 2000, we
repurchased 525,400 shares of common stock for approximately $5.4 million
under this plan. From the inception of the plan through December 31, 2000, we
repurchased an aggregate of approximately 2.4 million shares of common stock
for approximately $20.2 million, leaving a balance of approximately $14.8
million available for future share repurchases.
21
We have no other material commitments or off balance sheet financing
arrangements that under current market conditions are expected to materially
affect our future liquidity.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 requires all derivatives to be
recorded as either assets or liabilities in the consolidated balance sheets
and measure those instruments at fair value. We are required to adopt SFAS 133
effective January 1, 2001. We do not anticipate that the adoption of SFAS 133
will have a significant effect on our financial position or the results of our
operations.
22
FORWARD-LOOKING STATEMENTS
This Form 10-K contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which represent our expectations or beliefs concerning
future events, including, but not limited to, statements regarding:
. the strength of the California housing market;
. our opportunities and desire to expand in our existing markets and enter
new geographic markets;
. our entry into the active adult market;
. expected deliveries and average home prices;
. expected lot purchases from land development joint ventures;
. expected joint venture land sales and home sales and deliveries;
. the adequacy of our inventory of building sites and our competitive edge
in acquiring new building sites;
. our continued use of joint ventures and strategic alliances to secure
land positions and as financing structures;
. the time typically required to complete construction of a home;
. the expected impact of outstanding claims and actions on our results of
operations and financial position;
. our orders and backlog and the estimated sales value of our backlog;
. planned new home community openings and the expected number of active
selling communities;
. the sufficiency of our liquidity sources;
. the expected impact of various accounting statements on our financial
position and results of operations;
. our exposure to market risks, including fluctuations in interest rates;
. the likelihood of realization of a net deferred tax asset; and
. the potential value of and expense related to stock option grants.
Forward-looking statements are based on current expectations or beliefs
regarding future events or circumstances, and you should not place undue
reliance on these statements. Such statements involve known and unknown risks,
uncertainties, assumptions and other factors--many of which are out of our
control and difficult to forecast--that may cause actual results to differ
materially from those that may be described or implied. Such factors include
but are not limited to:
. local and general economic and market conditions, including consumer
confidence, employment rates, interest rates, the cost and availability
of mortgage financing, and stock market, home and land valuations;
. the cost and availability of suitable undeveloped land, building
materials and labor;
. the cost and availability of construction financing and corporate debt
and equity capital;
. the demand for single-family homes;
. cancellations of purchase contracts by homebuyers;
. the cyclical and competitive nature of our business;
. governmental regulation, including the impact of "slow growth," "no
growth" or similar initiatives;
. delays in the land entitlement process, development, construction, or the
opening of new home communities;
23
. adverse weather conditions and natural disasters;
. environmental matters;
. risks relating to our mortgage banking operations, including hedging
activities;
. future business decisions and our ability to successfully implement our
operational, growth and other strategies; and
. litigation and warranty claims.
We assume no, and hereby disclaim any, obligation to update any of the
foregoing or any other forward-looking statements. We nonetheless reserve the
right to make such updates from time to time by press release, periodic report
or other method of public disclosure without the need for specific reference
to this Form 10-K. No such update shall be deemed to indicate that other
statements not addressed by such update remain correct or create an obligation
to provide any other updates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
our mortgage loans receivable, mortgage loans held for sale and outstanding
debt. Other than forward sale commitments of mortgage-backed securities
entered into by our financial services subsidiary as described below, we did
not utilize swaps, forward or option contracts on interest rates, foreign
currencies or commodities or other types of derivative financial instruments
as of or during the year ended December 31, 2000. The purpose of the following
analysis is to provide a framework to understand our sensitivity to
hypothetical changes in interest rates as of December 31, 2000. You should be
aware that many of the statements contained in this section are forward
looking and should be read in conjunction with our disclosures under the
heading "Forward-Looking Statements."
As part of our ongoing operations, we provide mortgage loans to our
homebuyers through our financial services subsidiary and joint ventures. SPH
Mortgage and WRT Financial, our mortgage banking joint ventures, and, except
as described in the following paragraph, Family Lending, our financial
services subsidiary, manage the interest rate risk associated with making loan
commitments and holding loans for sale by preselling loans. Preselling loans
consists of obtaining commitments from investors to purchase the mortgage
loans being originated concurrently with extending interest rate locks to loan
applicants. In the case of SPH Mortgage and WRT Financial, these loans are
typically presold to their respective financial institution partners. In the
case of Family Lending, these loans are presold to third party investors.
Family Lending also generally warehouses the loans for a short period of time
(typically for 15 to 30 days) while the investor completes its administrative
review of the applicable loan documents. Due to the frequency of these loan
sales and commitments from its investors, we believe the market rate risk
associated with loans presold on this basis by Family Lending is minimal.
There are also certain loans in Family Lending's mortgage loan portfolio which
were contributed to Family Lending in connection with its initial
capitalization. These mortgage loans are held for sale and include both fixed
and variable rate loans. To a much lesser extent, our homebuilding operation
has provided first and second mortgage loans to homebuyers and on occasion
trust deed mortgage financing on land sales. These loans are held to maturity
and generally are at fixed interest rates.
To enhance potential returns on the sale of mortgage loans, Family Lending
also originates a portion of its mortgage loans on a non-presold basis. When
originating on a non-presold basis, Family Lending is required to lock
interest rates with its customers and fund loans prior to obtaining purchase
commitments from secondary market investors, thereby creating interest rate
risk. Loans originated on a non-presold basis are typically held by Family
Lending and financed under its warehouse facility for 15 to 60 days before
they are sold to third party investors. To hedge its interest rate risk
associated with extending interest rate commitments to loan applicants prior
to selling loans to investors and holding closed loans following funding,
Family Lending generally enters into forward sale commitments of mortgage-
backed securities. Family Lending utilizes the services of a third party
advisory firm to assist with the implementation and execution of its hedging
strategy for loans originated on a non-presold basis. While this hedging
strategy should assist Family Lending in mitigating risk associated
24
with originating loans on a non-presold basis, these instruments involve
elements of market risk which could result in losses on loans sold in this
manner if not hedged properly.
We utilize debt financing primarily for the purpose of acquiring and
developing land, constructing and selling homes and funding market expansion
through acquisitions. Historically, we have made short-term borrowings under
our revolving credit facility to fund these expenditures and when market
conditions were appropriate, based on our judgment, we would issue stock or
fixed rate debt to provide longer-term financing. In addition, as discussed
above our financial services subsidiary utilizes short-term borrowings under
its mortgage warehouse credit facility to finance mortgage loan originations
for our homebuyers. Borrowings under both of these revolving credit facilities
are at variable rates.
For fixed rate debt, changes in interest rates generally affect the fair
market value of the debt instrument, but not our earnings or cash flows.
Conversely, for variable rate debt, changes in interest rates generally do not
impact the fair market value of the debt instrument, but do affect our
earnings and cash flows. We do not currently have any obligations to prepay
fixed rate debt prior to maturity, and as a result, interest rate risk and
changes in fair market value should not have a significant impact on the fixed
rate debt until we would be required to refinance such debt. Holding our
variable rate debt balance constant as of December 31, 2000, each one
percentage point increase in interest rates would result in an increase in
variable rate interest incurred for the coming year of approximately $453,000.
A one point percentage increase in interest rates on our average variable rate
debt outstanding during 2000 would have resulted in an increase in variable
rate interest costs of approximately $960,000.
The table below details the principal amount and the average interest rates
for the mortgage notes receivable, mortgage loans held for sale and
outstanding debt for each category based upon the expected maturity or
disposition dates. Certain mortgage notes receivable and mortgage loans held
for sale require periodic principal payments prior to the expected maturity
date. The fair value estimates for these mortgage notes receivable and
mortgage loans held for sale are based upon future discounted cash flows of
similar type notes or quoted market prices for similar loans. The carrying
value of our variable rate debt approximates fair value due to the frequency
of repricing of this debt. Our fixed rate debt consists of trust deed notes
payable and senior notes payable. The interest rates on our trust deed notes
payable were below current market rates available for secured real estate
financing and were therefore discounted at an interest rate which was
commensurate with market rates for secured financing with similar terms and
maturities to determine their fair market value. Our senior notes payable are
publicly traded debt instruments and their fair values are based on their
quoted market prices as of December 31, 2000.
Expected Maturity Date Estimated
------------------------------------------- Fair
2001 2002 2003 2004 2005 Thereafter Total Value
December 31, ------- ---- ---- ---- ---- ---------- -------- ---------
(Dollars in thousands)
Assets:
Mortgage notes
receivable........... $ 494 $ 52 $ 57 $ 54 $ 48 $ 1,039 $ 1,744 $ 1,648
Average interest
rate............... 8.0% 7.7% 7.7% 7.5% 7.2% 7.2% 6.9%
Mortgage loans held
for sale(1).......... $52,009 $272 $153 $120 $142 $ 1,352 $ 54,048 $ 54,817
Average interest
rate............... 7.7% 7.4% 8.7% 9.9% 9.2% 9.9% 7.8%
Liabilities:
Fixed rate debt....... $ -- $-- $-- $331 $ 62 $423,958 $424,351 $392,691
Average interest
rate............... -- -- -- 0% 0% 8.7% 8.7%
Variable rate debt.... $45,330 $-- $-- $-- $-- $ -- $ 45,330 $ 45,330
Average interest
rate............... 7.3% -- -- -- -- -- 7.3%
- --------
(1) Certain amounts presented in this line item reflect the expected date of
disposition of certain loans rather than the actual scheduled maturity
dates of these mortgages.
Based on the current interest rate management policies we have in place
with respect to certain mortgage loans held for sale, we do not believe that
the future market rate risks related to the above securities will have a
material adverse impact on our financial position, results of operations or
liquidity.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Standard Pacific Corp.:
We have audited the accompanying consolidated balance sheets of STANDARD
PACIFIC CORP. (a Delaware corporation) and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Standard Pacific Corp. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ Arthur Andersen LLP
Orange County, California
January 19, 2001
26
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Year Ended December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Homebuilding:
Revenues................................ $1,317,995 $1,198,831 $ 759,612
Cost of sales........................... 1,057,827 986,793 618,448
---------- ---------- ----------
Gross margin.......................... 260,168 212,038 141,164
---------- ---------- ----------
Selling, general and administrative
expenses............................... 105,141 99,971 61,691
Income from unconsolidated joint
ventures............................... 16,478 6,201 4,158
Interest expense........................ 3,599 1,519 1,168
Amortization of excess of cost over net
assets acquired........................ 2,100 1,979 1,312
Other income (expense).................. 167 (712) 168
---------- ---------- ----------
Homebuilding pretax income............ 165,973 114,058 81,319
---------- ---------- ----------
Financial Services:
Revenues................................ 3,410 2,257 1,403
Expenses................................ 4,265 3,140 1,828
Income from unconsolidated joint
ventures............................... 718 783 --
Other income............................ 311 105 --
---------- ---------- ----------
Financial services pretax income
(loss)............................... 174 5 (425)
---------- ---------- ----------
Income from continuing operations before
income taxes and extraordinary charge.... 166,147 114,063 80,894
Provision for income taxes................ (66,005) (46,492) (33,490)
---------- ---------- ----------
Income from continuing operations before
extraordinary charge..................... 100,142 67,571 47,404
Income (loss) from discontinued
operations, net of income taxes of $114
in 1999 and $111 in 1998................. -- (159) (199)
Gain on disposal of discontinued
operations, net of income taxes of $(425)
in 1999.................................. -- 618 --
Extraordinary charge from early
extinguishment of debt, net of income
taxes of $904 in 1998.................... -- -- (1,328)
---------- ---------- ----------
Net income................................ $ 100,142 $ 68,030 $ 45,877
========== ========== ==========
Basic Net Income Per Share:
Income per share from continuing
operations............................. $ 3.43 $ 2.28 $ 1.59
Income (loss) per share from
discontinued operations................ -- (0.01) (0.01)
Gain per share on disposal of
discontinued operations................ -- 0.02 --
Extraordinary charge per share from
early extinguishment of debt........... -- -- (0.04)
---------- ---------- ----------
Net income per share.................... $ 3.43 $ 2.29 $ 1.54
========== ========== ==========
Weighted average common shares
outstanding............................ 29,236,125 29,597,669 29,714,431
========== ========== ==========
Diluted Net Income Per Share:
Income per share from continuing
operations............................. $ 3.39 $ 2.27 $ 1.58
Income (loss) per share from
discontinued operations................ -- (0.01) (0.01)
Gain per share on disposal of
discontinued operations................ -- 0.02 --
Extraordinary charge per share from
early extinguishment of debt........... -- -- (0.04)
---------- ---------- ----------
Net income per share.................... $ 3.39 $ 2.28 $ 1.53
========== ========== ==========
Weighted average common and diluted
shares outstanding..................... 29,562,230 29,795,263 30,050,078
========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
27
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31,
-------------------
2000 1999
---------- --------
ASSETS
Homebuilding:
Cash and equivalents..................................... $ 38,270 $ 2,865
Mortgage notes receivable and accrued interest........... 1,744 4,530
Other notes and receivables, net......................... 37,640 10,489
Inventories.............................................. 843,103 699,489
Investments in and advances to unconsolidated joint
ventures................................................ 90,166 49,116
Property and equipment, net.............................. 5,150 2,656
Deferred income taxes.................................... 17,289 12,738
Other assets............................................. 12,650 13,350
Excess of cost over net assets acquired, net............. 16,850 15,315
---------- --------
1,062,862 810,548
---------- --------
Financial Services:
Cash and equivalents..................................... 173 313
Mortgage loans held for sale............................. 54,070 17,554
Other assets............................................. 1,681 1,553
---------- --------
55,924 19,420
---------- --------
Total Assets........................................... $1,118,786 $829,968
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable......................................... $ 70,372 $ 42,344
Accrued liabilities...................................... 91,408 69,437
Revolving credit facility................................ -- 23,000
Trust deed notes payable................................. 393 3,531
Senior notes payable..................................... 423,958 298,847
---------- --------
586,131 437,159
---------- --------
Financial Services:
Accounts payable and other liabilities................... 1,095 620
Mortgage warehouse line of credit........................ 45,330 10,304
---------- --------
46,425 10,924
---------- --------
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued................................. -- --
Common stock, $.01 par value; 100,000,000 shares
authorized; 30,076,494 and 29,208,680 shares outstanding
at December 31, 2000 and 1999, respectively............. 301 292
Paid-in capital.......................................... 292,223 278,701
Retained earnings........................................ 193,706 102,892
---------- --------
Total stockholders' equity............................... 486,230 381,885
---------- --------
Total Liabilities and Stockholders' Equity............. $1,118,786 $829,968
========== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
28
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Number of Retained Total
Years Ended December 31, Common Common Paid-In Earnings Stockholders'
1998, 1999 and 2000 Shares Stock Capital (Deficit) Equity
- ------------------------ ---------- ------ -------- --------- -------------
Balance, December 31,
1997................... 29,637,281 $296 $283,525 $ (43) $283,778
Exercise of stock
options and related
income tax benefit..... 131,500 1 1,383 -- 1,384
Repurchase of common
shares................. (139,301) (1) (1,310) -- (1,311)
Cash dividends declared
($0.17 per share)...... -- -- -- (5,049) (5,049)
Net income.............. -- -- -- 45,877 45,877
---------- ---- -------- -------- --------
Balance, December 31,
1998................... 29,629,480 296 283,598 40,785 324,679
Exercise of stock
options and related
income tax benefit..... 33,000 1 321 -- 322
Repurchase of common
shares................. (453,800) (5) (5,218) -- (5,223)
Cash dividends declared
($0.20 per share)...... -- -- -- (5,923) (5,923)
Net income.............. -- -- -- 68,030 68,030
---------- ---- -------- -------- --------
Balance, December 31,
1999................... 29,208,680 292 278,701 102,892 381,885
Exercise of stock
options and related
income tax benefit..... 233,816 2 3,123 -- 3,125
Repurchase of common
shares................. (525,400) (5) (5,381) -- (5,386)
Cash dividends declared
($0.32 per share)...... -- -- -- (9,328) (9,328)
Issuance of common
shares in connection
with acquisition....... 1,159,398 12 15,780 -- 15,792
Net income.............. -- -- -- 100,142 100,142
---------- ---- -------- -------- --------
Balance, December 31,
2000................... 30,076,494 $301 $292,223 $193,706 $486,230
========== ==== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
29
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
Cash Flows from Operating Activities:
Net income..................................... $100,142 $ 68,030 $ 45,877
Adjustments to reconcile net income to net cash
provided by (used in) operating activities of
continuing operations:
Discontinued operations...................... -- 159 199
Gain on disposal of discontinued operations.. -- (618) --
Extraordinary charge from early
extinguishment of debt...................... -- -- 1,328
Income from unconsolidated joint ventures.... (16,478) (6,201) (4,158)
Loss on disposal of property and equipment... -- 620 --
Depreciation and amortization................ 1,529 1,238 918
Amortization of excess of cost over net
assets acquired............................. 2,100 1,979 1,312
Changes in cash and equivalents due to:
Receivables and accrued interest........... (60,509) 17,108 (26,087)
Inventories................................ (66,655) 14,059 (193,242)
Deferred income taxes...................... (3,188) (1,954) 1,833
Other assets............................... 3,096 (3,023) (703)
Accounts payable........................... 23,912 20,329 2,883
Accrued liabilities........................ 19,290 5,468 30,624
-------- -------- --------
Net cash provided by (used in) operating
activities of continuing operations........... 3,239 117,194 (139,216)
-------- -------- --------
Cash Flows from Investing Activities:
Cash paid for acquisitions..................... (46,874) -- (59,279)
Investments in and advances to unconsolidated
joint ventures................................ (126,905) (44,095) (16,651)
Distributions and repayments from
unconsolidated joint ventures................. 89,596 39,585 8,621
Net additions to property and equipment........ (3,591) (1,002) (1,439)
Proceeds from the sale of discontinued
operations.................................... -- 8,798 1,087
-------- -------- --------
Net cash provided by (used in) investing
activities.................................... (87,774) 3,286 (67,661)
-------- -------- --------
Cash Flows from Financing Activities:
Net proceeds from (payments on) revolving
credit facility............................... (23,000) (181,900) 185,900
Net proceeds from (payments on) mortgage
warehouse line of credit...................... 35,026 (522) 10,826
Proceeds from the issuance of senior notes
payable....................................... 123,125 98,250 97,571
Principal payments on senior notes and trust
deed notes payable............................ (3,138) (37,293) (75,148)
Dividends paid................................. (9,328) (5,923) (5,049)
Repurchase of common shares.................... (5,386) (5,223) (1,311)
Proceeds from exercise of stock options........ 2,501 245 771
-------- -------- --------
Net cash provided by (used in) financing
activities.................................... 119,800 (132,366) 213,560
-------- -------- --------
Net change in cash from discontinued operations.. -- (38,130) (6,826)
-------- -------- --------
Net increase (decrease) in cash and equivalents.. 35,265 (50,016) (143)
Cash and equivalents at beginning of year........ 3,178 53,194 53,337
-------- -------- --------
Cash and equivalents at end of year.............. $ 38,443 $ 3,178 $ 53,194
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
30
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
Year Ended December 31,
------------------------
2000 1999 1998
-------- ------- -------
Summary of Cash Balances:
Continuing operations............................... $ 38,443 $ 3,178 $15,064
Discontinued operations............................. -- -- 38,130
-------- ------- -------
$ 38,443 $ 3,178 $53,194
======== ======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest--continuing operations................... $ 33,614 $32,248 $24,995
Income taxes...................................... 55,170 54,699 19,890
Supplemental Disclosures of Noncash Activities:
Issuance of common stock in connection with
acquisition........................................ $ 15,792 $ -- $ --
Inventory received as a distribution from
unconsolidated joint ventures...................... 12,737 -- --
Land acquisitions financed by purchase money trust
deeds.............................................. -- -- 18,670
Expenses capitalized in connection with the issuance
of the 9 1/2% senior notes due 2010................ 1,875 -- --
Expenses capitalized in connection with the issuance
of the 8 1/2% senior notes due 2009................ -- 1,750 --
Expenses capitalized in connection with the issuance
of the 8% senior notes due 2008.................... -- -- 1,750
Income tax benefit credited in connection with stock
option exercises................................... 624 77 613
The accompanying notes are an integral part of these consolidated statements.
31
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Company Organization and Operations
We operate primarily as a geographically diversified builder of single-
family homes for use as primary residences with operations throughout the
major metropolitan markets in California, Texas, Arizona and Colorado. We also
provide mortgage financing and title services to our homebuyers through our
subsidiaries and joint ventures, Family Lending Services, SPH Mortgage, WRT
Financial and SPH Title. Unless the context otherwise requires, the terms
"we", "us" and "our" refer to Standard Pacific Corp. and its subsidiaries.
For the year ended December 31, 2000, approximately 62 percent, 14 percent,
20 percent and 4 percent of our home deliveries (including the unconsolidated
joint ventures) were from California, Texas, Arizona and Colorado,
respectively. There have been periods of time in California where economic
growth has slowed and the demand for new homes in certain areas in California
in which we do business, and in some instances home prices, have declined.
There can be no assurance that the demand for new homes or home sales prices
in California will not decline in the future.
2. Summary of Significant Accounting Policies
a. Basis of Presentation
The consolidated financial statements include the accounts of Standard
Pacific Corp. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Investments in unconsolidated
joint ventures in which we have less than a controlling interest are accounted
for using the equity method.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
c. Segment Reporting
Effective December 31, 1998, we adopted Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). Under the provisions of SFAS 131, our operating
segments consist of homebuilding and financial services. These two segments
are segregated in the accompanying consolidated financial statements under
"Homebuilding" and "Financial Services," respectively.
d. Cash and Equivalents
For purposes of the consolidated statements of cash flows, cash and
equivalents include cash on hand, demand deposits, and all highly liquid
short-term investments, including interest bearing securities purchased with a
maturity of three months or less.
e. Mortgage Loans Held for Sale
Mortgage loans held for sale are reported at the lower of cost or market on
an aggregate basis. We estimate the market value of our loans held for sale
based on quoted market prices for similar loans. Loan origination fees, net of
the related direct origination costs, and loan discount points are deferred as
an adjustment to the carrying value of the related mortgage loans held for
sale and are recognized into income upon the sale of mortgage loans.
32
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
f. Inventories
Inventories consisted of the following:
December 31,
-----------------
2000 1999
-------- --------
(Dollars in
thousands)
Housing completed and under construction.................. $344,237 $253,726
Land and land under development........................... 443,325 401,066
Model homes............................................... 55,541 44,697
-------- --------
$843,103 $699,489
======== ========
We capitalize direct carrying costs, including interest, property taxes and
related development costs to real estate under development. Field construction
supervision and related direct overhead are also included in the capitalized
cost of real estate inventories. Land, land improvements and other common
costs are allocated on a relative fair value basis to units within a parcel or
subdivision.
We assess the recoverability of inventories in accordance with the
provisions of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of" ("SFAS 121"). SFAS 121 requires long-lived assets, including
inventories, that are expected to be held and used in operations to be carried
at the lower of cost or, if impaired, the fair value of the asset, rather than
its net realizable value. SFAS 121 also requires that companies evaluate long-
lived assets for impairment based on undiscounted future cash flows of the
assets (excluding interest) at the lowest level for which there are
identifiable cash flows. We review each real estate project on a community by
community basis to determine whether or not carrying amounts have been
impaired. Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.
g. Capitalization of Interest
We follow the practice of capitalizing interest to real estate inventories
during the period of development in accordance with Statement of Financial
Accounting Standards No. 34, "Capitalization of Interest Cost." Interest
capitalized as a cost of real estate under development is included in cost of
sales as related units are sold. The following is a summary of interest
capitalized and expensed from continuing operations for the following periods:
Year Ended December 31,
-----------------------
2000 1999 1998
------- ------- -------
(Dollars in thousands)
Total interest incurred during the year............. $39,627 $35,151 $29,010
Less: Interest capitalized as a cost of real estate
under development.................................. 36,028 33,632 27,842
------- ------- -------
Interest expense.................................... $ 3,599 $ 1,519 $ 1,168
======= ======= =======
Interest previously capitalized as a cost of real
estate under development, included in cost of
sales.............................................. $33,854 $27,401 $26,399
======= ======= =======
Capitalized interest in ending inventories.......... $23,560 $21,386 $15,155
======= ======= =======
h. Property and Equipment
Property and equipment is recorded at cost, net of accumulated depreciation
and amortization of $4,471,000 and $5,477,000 as of December 31, 2000 and
1999, respectively. Depreciation and amortization is recorded using the
straight-line method over the estimated useful lives of the assets which
typically range between 3 and 10 years.
33
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
i. Income Taxes
We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires a liability approach for measuring deferred taxes based on temporary
differences between the financial statement and tax bases of assets and
liabilities existing at each balance sheet date using enacted tax rates for
years in which taxes are expected to be paid or recovered.
j. Excess of Cost Over Net Assets Acquired
The excess amount paid for business acquisitions over the net fair value of
assets acquired and liabilities assumed has been capitalized in the
accompanying consolidated balance sheets and is being amortized on a straight-
line basis over periods ranging from 7 to 12 years. Accumulated amortization
was $5,635,000 and $3,535,000 as of December 31, 2000 and 1999, respectively
(See Note 4). In the event that facts and circumstances indicate that the
carrying value of excess of cost over net assets acquired may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the excess of
cost over net assets acquired would be compared to the carrying amount to
determine if a write-down to fair value or discounted cash flow is required.
k. Revenue Recognition
Homebuilding revenues are recorded after construction is completed, payment
of the purchase price is received and title passes.
We recognize loan origination fees and expenses, and gains and losses on
loans when the related mortgage loans are sold. Our current policy is to sell
all mortgage loans originated. Mortgage loan interest is accrued only so long
as it is deemed collectible.
l. Warranty Costs
Estimated future warranty costs are accrued and charged to cost of sales in
the period when the related homebuilding revenues are recognized.
m. Net Income Per Share
We compute net income per share in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share" ("SFAS 128"). This statement
requires the presentation of both basic and diluted net income per share for
financial statement purposes. Basic net income per share is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income per share includes the
effect of the potential shares outstanding, including dilutive stock options
using the treasury stock method. The table set forth below reconciles the
components of the basic net income per share calculation to diluted net income
per share.
Year Ended December 31,
---------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------ ------------------------
Income Shares EPS Income Shares EPS Income Shares EPS
-------- ---------- ----- ------- ---------- ----- ------- ---------- -----
(Dollars in thousands, except per share amounts)
Basic Net Income Per
Share:
Income available to
common stockholders
from continuing
operations before
extraordinary charge.. $100,142 29,236,125 $3.43 $67,571 29,597,669 $2.28 $47,404 29,714,431 $1.59
Effect of dilutive stock
options................ -- 326,105 -- 197,594 -- 335,647
-------- ---------- ------- ---------- ------- ----------
Diluted income per share
from continuing
operations before
extraordinary charge... $100,142 29,562,230 $3.39 $67,571 29,795,263 $2.27 $47,404 30,050,078 $1.58
======== ========== ===== ======= ========== ===== ======= ========== =====
34
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
n. Comprehensive Income
We adopted Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), during 1998. SFAS 130 requires that an
enterprise (a) classify items of other comprehensive income by their nature in
a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of its balance sheet. We had no items of other
comprehensive income in any period presented in the accompanying consolidated
financial statements.
o. Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 requires all derivatives to be
recorded as either assets or liabilities in the consolidated balance sheets
and measure these instruments at fair value. We are required to adopt SFAS 133
effective January 1, 2001. We do not anticipate the adoption of SFAS 133 will
have a significant effect on our financial position or the results of our
operations.
p. Reclassifications
Certain items in prior period financial statements have been reclassified
to conform with current year presentation.
3. Investments in Unconsolidated Joint Ventures
Summarized financial information related to our joint ventures accounted
for under the equity method are as follows:
December 31,
-----------------
2000 1999
-------- --------
(Dollars in
thousands)
Assets:
Cash................................................... $ 14,556 $ 7,478
Real estate in process of development and completed
model homes........................................... 292,144 278,068
Other assets........................................... 34,405 22,950
-------- --------
$341,105 $308,496
-------- --------
Liabilities and Equity:
Accounts payable and accrued expenses.................. $ 58,953 $ 39,704
Construction loans and trust deed notes payable........ 115,369 144,370
General obligation assessment bonds.................... 44,699 44,928
Equity................................................. 122,084 79,494
-------- --------
$341,105 $308,496
======== ========
35
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Our share of equity shown above was approximately $59.1 million and $36.1
million at December 31, 2000 and 1999, respectively.
Year Ended December 31,
------------------------
2000 1999 1998
-------- ------- -------
(Dollars in thousands)
Revenues........................................... $209,717 $43,642 $54,219
Cost of revenues and expenses...................... 159,000 33,101 41,588
-------- ------- -------
Net earnings of joint ventures..................... $ 50,717 $10,541 $12,631
======== ======= =======
Our share of earnings in the joint ventures detailed above varies, but in
no case is our share of earnings greater than 50 percent. All intercompany
profits or losses from unconsolidated joint ventures are eliminated.
In addition, there are some joint ventures to which we are a party whose
sole purpose is to develop finished lots for sale to the joint venture's
members. We and the other members of these joint ventures then purchase the
lots from the joint venture to construct homes thereon.
4. Acquisitions
On August 25, 2000, we acquired The Writer Corporation, a publicly traded
Denver-based homebuilder ("Writer"), for a purchase price of $3.35 per share
of Writer common stock, or a total of approximately $26 million (excluding
transaction costs), plus the assumption of approximately $37.5 million of
indebtedness. The acquisition consideration was paid in a combination of cash,
totaling approximately $10.2 million, and 1,159,398 shares of Standard Pacific
common stock. The cash component of the acquisition was financed under our
unsecured revolving credit facility. With this acquisition, we purchased or
assumed the rights to acquire approximately 2,000 single-family lots located
in the Denver and Fort Collins areas, which included 11 active subdivisions at
the close of the transaction. In addition, we acquired a backlog of 149 pre-
sold homes and retained Writer's management team and staff.
On August 31, 1998, we acquired a portion of the assets of Shea Homes'
Phoenix, Arizona single-family homebuilding operation (which had recently been
acquired from UDC Homes, Inc.) for approximately $59 million in cash. The
acquisition was financed with proceeds from our unsecured revolving credit
facility. At closing, we purchased or assumed the rights to acquire over 2,000
single-family lots located in 13 communities in the Phoenix metropolitan area,
of which seven communities were active subdivisions, and acquired a backlog of
400 presold homes. In addition, we retained UDC's Arizona senior management
team and many of the existing staff.
On September 30, 1997, we acquired all of the outstanding common stock of
Duc Development Company ("Duc"), a privately-held Northern California
homebuilding company, for approximately $16 million. In connection with this
acquisition, we acquired certain other real estate assets related to Duc's
operations for approximately $55 million in cash and the assumption of
approximately $8 million of debt.
All acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the net
assets acquired based upon their estimated fair market values as of the date
of acquisition. The excess of the purchase price over the estimated fair value
of net assets acquired totaled approximately $3.6 million, $12 million and
$6.9 million for the Colorado, Arizona and Northern California acquisitions,
respectively. The excess purchase price has been recorded as excess of cost
over net assets acquired in the accompanying consolidated balance sheets and
is being amortized on a straight-line basis over periods ranging from 7 to 12
years from the date of acquisition.
36
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Revolving Credit Facility and Trust Deed Notes Payable
a. Revolving Credit Facility
In September 2000, we amended our $450 million unsecured revolving credit
facility with our bank group to, among other things, extend the maturity date
to July 31, 2004 and revise certain financial and other covenants. The
facility contains covenants which require, among other things, the maintenance
of certain amounts of tangible stockholders' equity, limitations on leverage,
and minimum interest coverage. Additionally, the amended credit facility
contains an option which allows us to increase the total aggregate commitment
up to $475 million subject to the approval of the agent bank. This agreement
also contains a borrowing base provision and financial covenants which may
limit the amount we may borrow under the revolving credit facility. At
December 31, 2000, we had no borrowings outstanding under this facility. At
December 31, 2000, we had approximately $23.6 million in letters of credit
outstanding. Interest rates charged under this facility include LIBOR and
prime rate pricing options. In addition, there are fees charged on the
commitment and unused portion of the facility. As of December 31, 2000, and
throughout the year, we were in compliance with the covenants of this
facility.
b. Trust Deed Notes Payable
At December 31, 2000 and 1999, trust deed notes payable consisted of trust
deeds on land purchases.
c. Borrowings and Maturities
The following summarizes the borrowings outstanding under the unsecured
revolving credit facility (excluding senior notes--see Note 6) and trust deed
notes payable during the three years ended December 31:
2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Maximum borrowings outstanding during the
year at month end.......................... $210,749 $237,022 $244,808
Average outstanding balance during the
year....................................... $ 84,217 $131,850 $ 97,349
Weighted average interest rate for the
year....................................... 7.9% 6.5% 6.9%
Weighted average interest rate on borrowings
outstanding at
year end................................... 0% 7.2% 7.0%
Maturities of the revolving credit facility, trust deed notes payable and
senior notes payable (see Note 6 below) are as follows:
Year Ended
December 31,
------------
(Dollars in
thousands)
2001............................................................ $ --
2002............................................................ --
2003............................................................ --
2004............................................................ 331
2005............................................................ 62
Thereafter...................................................... 423,958
--------
$424,351
========
37
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Senior Notes Payable
Senior notes payable consist of the following:
December 31,
-----------------
2000 1999
-------- --------
(Dollars in
thousands)
8 1/2% Senior Notes due 2007, net......................... $ 99,489 $ 99,432
8% Senior Notes due 2008, net............................. 99,469 99,415
8 1/2% Senior Notes due 2009.............................. 100,000 100,000
9 1/2% Senior Notes due 2010.............................. 125,000 --
-------- --------
$423,958 $298,847
======== ========
In 1993, we issued $100 million principal amount of 10 1/2% Senior Notes
due March 1, 2000 (the "10 1/2% Senior Notes"). Under the original terms of
the 10 1/2% Senior Notes, we did not have the option to redeem these notes
prior to their scheduled maturities. However, we were required to make annual
mandatory sinking fund payments sufficient to retire 20 percent of the
original aggregate principal amount of these notes ($20 million per year)
commencing on March 1, 1997, at a redemption price of 100 percent of the
principal amount, with the balance of the notes to be retired on March 1,
2000. We made two $20 million sinking fund payments on the 10 1/2% Senior
Notes in March 1997 and 1998. In May 1998, we repurchased and retired
approximately $7.7 million of our 10 1/2% Senior Notes through a series of
open market purchases. In addition, on September 30, 1998, we completed a
tender offer and consent solicitation for a portion of our 10 1/2% Senior
Notes. In connection with this tender offer, we repurchased and retired
approximately $31.5 million of our 10 1/2% Senior Notes. With the successful
completion of the consent solicitation, certain restrictive financial
covenants were modified or eliminated under the indenture. In aggregate, we
incurred an after tax extraordinary charge for the early extinguishment of
debt, including transaction costs, of approximately $1.3 million for the year
ended December 31, 1998. On March 1, 1999, we repaid the balance of the 10
1/2% Senior Notes outstanding ($19.6 million) under the annual sinking fund
payment provision of the indenture.
In June 1997, we issued $100 million of 8 1/2% Senior Notes due June 15,
2007 (the "8 1/2% Senior Notes"). The 8 1/2% Senior Notes were issued at a
discount to yield approximately 8.6 percent and have been reflected net of the
unamortized discount in the accompanying consolidated balance sheets. Interest
is due and payable on June 15 and December 15 of each year until maturity.
These notes are redeemable at our option, in whole or in part, commencing June
15, 2002 at a price of 104.25 percent of par value, with the call price
reducing ratably to par on June 15, 2005. Net proceeds after offering expenses
were approximately $96.9 million.
In February 1998, we issued $100 million of 8% Senior Notes due February
15, 2008 (the "8% Senior Notes"). The 8% Senior Notes were issued at a
discount to yield approximately 8.1 percent. Interest is due and payable on
February 15 and August 15 of each year until maturity. These notes are
redeemable at our option, in whole or in part, commencing February 15, 2003 at
104.00 percent of par, with the call price reducing ratably to par on February
15, 2006. Net proceeds after offering expenses were approximately $97.3
million.
In April 1999, we issued $100 million of 8 1/2% Senior Notes which mature
April 1, 2009 (the "8 1/2% Senior Notes due 2009"). The 8 1/2% Senior Notes
due 2009 were issued at par with interest due and payable on April 1 and
October 1 of each year until maturity. The 8 1/2% Senior Notes due 2009 are
redeemable at our option, in whole or in part, commencing April 1, 2004 at
104.25 percent of par, with the call price reducing ratably to par on April 1,
2007. Net proceeds after underwriting expenses were approximately $98.3
million.
In September 2000, we issued $125 million of 9 1/2% Senior Notes which
mature on September 15, 2010 (the "9 1/2% Senior Notes"). These notes were
issued at par with interest due and payable on March 15 and
38
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 15 of each year until maturity. The 9 1/2% Senior Notes are
redeemable at our option, in whole or in part, commencing September 15, 2005
at 104.75 percent of par, with the call price reducing ratably to par on
September 15, 2008. Net proceeds after underwriting expenses were
approximately $123.1 million and were used to repay a portion of the balance
outstanding under our revolving credit facility.
The four senior note offerings are all senior unsecured obligations and
rank equally with our other existing senior unsecured indebtedness. We will,
under certain circumstances, be obligated to make an offer to purchase a
portion of the notes in the event of certain asset sales. In addition, these
notes contain other restrictive covenants which, among other things, impose
certain limitations on our ability to (1) incur additional indebtedness,
(2) create liens, (3) make restricted payments, and (4) sell assets. Also,
upon a change in control we are required to make an offer to purchase these
notes. As of December 31, 2000, we were in compliance with the covenants under
the notes.
7. Mortgage Warehouse Line of Credit
Our financial services subsidiary maintains a revolving mortgage warehouse
credit facility with a bank to finance its mortgage loans held for sale. In
May 1999, the commitment under this facility was increased from $15 million to
$40 million. In December 2000, the commitment under this facility was
temporarily increased to $55 million through January 31, 2001 to accommodate
the increase in loan volume activity at year end. Borrowings under the
mortgage warehouse facility, which are LIBOR based and have a maturity date of
May 29, 2001, are secured by the related mortgage loans held for sale. Maximum
borrowings outstanding under this facility during 2000 and 1999 were
approximately $45.3 million and $10.3 million, respectively. Average
borrowings outstanding during the years ended December 31, 2000 and 1999 were
approximately $13.6 million and $4.3 million, respectively. The weighted
average interest rate of the mortgage warehouse facility during the years
ended December 31, 2000 and 1999 was 7.3 percent and 6.2 percent,
respectively. In addition, the mortgage warehouse facility requires our
financial services subsidiary to comply with certain financial covenants,
including, but not limited to, a minimum net worth requirement, a total
liabilities to tangible net worth ratio and a minimum liquidity requirement.
As of December 31, 2000, and throughout the year, Family Lending was in
compliance with all covenants of the mortgage warehouse facility.
8. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate:
Cash and Equivalents--The carrying amount is a reasonable estimate of fair
value. These assets primarily consist of short term investments and demand
deposits.
Mortgage Notes Receivable--Mortgage notes receivable consist of first and
second mortgages on single-family residences and trust deed notes receivable
originated from land sales. Fair values are determined based upon discounted
cash flows of the applicable instruments.
Mortgage Loans Held for Sale--These consist primarily of first mortgages on
single-family residences. Fair value of these loans is based on quoted market
prices for similar loans.
Revolving Credit Facility and Mortgage Warehouse Line of Credit--The
carrying amounts of these credit obligations approximate market value because
of the frequency of repricing the borrowings (generally every 7 to 90 days).
39
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Trust Deed Notes Payable--These notes are primarily for purchase money
deeds of trust on land acquired. The notes were discounted at an interest rate
which is commensurate with market rates of similar secured real estate
financing.
8 1/2% Senior Notes due 2007--This issue is publicly traded on the New York
Stock Exchange. As a result, the fair value of this issue was based on its
quoted market price at year end.
8% Senior Notes due 2008--This issue is publicly traded over the counter
and its fair value was based upon the value of its last trade at year end.
8 1/2% Senior Notes due 2009--This issue is publicly traded over the
counter and its fair value was based upon the value of its last trade at year
end.
9 1/2% Senior Notes due 2010--This issue is also publicly traded over the
counter and its fair value was based upon the value of its last trade at year
end.
The estimated fair values of financial instruments from continuing
operations are as follows:
December 31,
---------------------------------
2000 1999
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
(Dollars in thousands)
Financial assets:
Homebuilding:
Cash and equivalents.................. $38,270 $38,270 $ 2,865 $ 2,865
Mortgage notes receivable............. 1,744 1,648 4,530 3,969
Financial services:
Cash and equivalents.................. 173 173 313 313
Mortgage loans held for sale.......... 54,070 54,817 17,554 18,192
Financial liabilities:
Homebuilding:
Revolving credit facility............. $ -- $ -- $23,000 $23,000
Trust deed notes payable.............. 393 285 3,531 3,531
8 1/2% Senior Notes due 2007.......... 99,489 92,000 99,432 92,500
8% Senior Notes due 2008.............. 99,469 90,750 99,415 90,250
8 1/2% Senior Notes due 2009.......... 100,000 90,750 100,000 92,750
9 1/2% Senior Notes due 2010.......... 125,000 118,906 -- --
Financial services:
Mortgage warehouse line of credit..... 45,330 45,330 10,304 10,304
40
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Commitments and Contingencies
We lease office facilities and certain equipment under noncancelable
operating leases. Future minimum rental payments on operating leases, net of
related subleases, having an initial term in excess of one year as of December
31, 2000 are as follows:
Year Ended December 31,
-----------------------
(Dollars in thousands)
2001................................................ $ 3,223
2002................................................ 2,599
2003................................................ 2,391
2004................................................ 2,129
2005................................................ 1,740
Thereafter.......................................... 3,331
-------
Subtotal.......................................... 15,413
Less--Sublease income............................... (1,126)
-------
Net rental obligations............................ $14,287
=======
Rent expense from continuing operations under noncancelable operating
leases, net of sublease income, for the three years ended December 31, 2000
was approximately $2,334,000, $1,065,000 and $838,000, respectively.
We are subject to the usual obligations associated with entering into
contracts for the purchase of land and improved homesites. These purchase
contracts typically require a nominal deposit and the purchase of properties
under these contracts is generally contingent upon satisfaction of certain
requirements by us and the sellers, including obtaining applicable property
entitlements. In addition, we acquire certain lots by means of option
contracts. Option contracts generally require the payment of cash for the
right to acquire lots during a specified period of time at certain prices.
Under option contracts, purchase of the properties is also contingent upon
satisfaction of certain requirements by us and the sellers.
In connection with certain of our unconsolidated joint ventures, we and the
other joint venture members may be required to make capital contributions to
the joint ventures in the event of a decline in the appraised value of the
underlying property. Such payments would be used to reduce amounts borrowed by
the joint venture under secured construction loans.
Mortgage loans in process for which interest rates were committed to
borrowers totaled approximately $5.5 million at December 31, 2000 and carried
a weighted average interest rate of approximately 7.7 percent. Interest rate
risks related to these obligations are generally mitigated by Family Lending
preselling the loans to its investors or through its interest rate hedging
program.
We are party to claims and litigation proceedings arising in the normal
course of business. Although the legal responsibility and financial impact
with respect to certain claims and litigation cannot presently be ascertained,
we do not believe that these matters will result in us making a payment of
monetary damages that, in the aggregate, would have a material impact on our
financial position, results of operations or liquidity. It is possible that
the reserves provided for by us with respect to such claims and litigation
could change in the near term.
41
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Income Taxes
The provision for income taxes for continuing operations includes the
following components:
Year Ended December 31,
-------------------------
2000 1999 1998
------- ------- -------
(Dollars in thousands)
Current:
Federal......................................... $57,711 $40,891 $24,940
State........................................... 12,560 9,136 4,160
------- ------- -------
70,271 50,027 29,100
------- ------- -------
Deferred:
Federal......................................... (4,001) (3,272) 3,931
State........................................... (265) (263) 459
------- ------- -------
(4,266) (3,535) 4,390
------- ------- -------
Provision for income taxes for continuing
operations and before
extraordinary charge............................. $66,005 $46,492 $33,490
======= ======= =======
The components of our deferred income tax asset (liability) from continuing
operations is as follows:
December 31,
------------------------
2000 1999
----------- -----------
(Dollars in thousands)
Inventory adjustments............................ $ 2,903 $ 1,391
Financial accruals............................... 11,020 10,756
State income taxes............................... 4,686 2,855
Nondeductible purchase price..................... (1,589) (2,568)
Amortization of excess of cost over net assets
acquired........................................ 281 165
Other............................................ (12) 139
----------- -----------
$ 17,289 $ 12,738
=========== ===========
At December 31, 2000, we had a consolidated net deferred tax asset of
approximately $17.3 million. Although realization is not assured, management
believes it is more likely than not that the net deferred tax asset will be
realized. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income are
reduced or if tax rates are lowered.
42
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The effective tax rate differs from the Federal statutory rate of 35
percent due to the following items:
Year Ended December 31,
---------------------------
2000 1999 1998
-------- -------- -------
(Dollars in thousands)
Financial income from continuing operations
before income taxes and extraordinary
charge...................................... $166,147 $114,063 $80,894
======== ======== =======
Provision for income taxes at statutory
rate........................................ $ 58,151 $ 39,922 $28,313
Increases (decreases) in tax resulting from:
State income taxes, net of federal
benefit................................... 7,736 5,976 4,648
Nondeductible amortization of excess of
cost over net assets acquired............. 437 394 399
Other...................................... (319) 200 130
-------- -------- -------
Provision for income taxes for continuing
operations and before extraordinary charge.. $ 66,005 $ 46,492 $33,490
======== ======== =======
Effective tax rate for continuing
operations.................................. 39.7% 40.8% 41.4%
======== ======== =======
11. Stock Option Plan
In 1991, we adopted the 1991 Employee Stock Incentive Plan (the "Plan")
pursuant to which our officers, directors and employees are eligible to
receive options to purchase shares of common stock. Under the Plan the maximum
number of shares of stock that may be issued is one million. In 1997, our
shareholders approved the 1997 Stock Incentive Plan (the "1997 Plan"). Under
the 1997 Plan, the maximum number of shares of stock that may be issued is two
million. On May 18, 2000, our shareholders approved the 2000 Stock Incentive
Plan (the "2000 Plan"). Under the 2000 Plan, the maximum number of shares of
stock that may be issued is one million.
Options are typically granted to purchase shares at prices equal to the
fair market value of the shares at the date of grant. The options typically
vest over a one to four year period and are generally exercisable for a
10 year period. When the options are exercised, the proceeds are credited to
equity net of the related income tax benefits, if any.
The following is a summary of the transactions relating to the three Plans
on a combined basis for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
Options outstanding,
beginning of year...... 2,426,990 $11.53 2,188,990 $11.55 958,990 $ 7.99
Granted................. 558,500 23.26 358,000 11.46 1,382,500 13.50
Exercised............... (233,816) 10.71 (33,000) 7.42 (131,500) 5.86
Canceled................ (186,125) 12.79 (87,000) 13.29 (21,000) 12.57
--------- ------ --------- ------ --------- ------
Options outstanding, end
of year................ 2,565,549 $14.08 2,426,990 $11.53 2,188,990 $11.55
========= ====== ========= ====== ========= ======
Options exercisable at
end of year............ 1,338,010 770,991 450,490
========= ========= =========
Options available for
future grant........... 680,900 53,275 323,775
========= ========= =========
43
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following information is provided pursuant to the requirements of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" ("SFAS 123").
The fair value of each option granted during the three years in the period
ended December 31, 2000 is estimated using the Black--Scholes option-pricing
model on the date of grant using the following weighted average assumptions:
2000 1999 1998
------- ------- -------
Dividend yield.................................... 1.38% 1.75% 1.52%
Expected volatility............................... 47.44% 44.65% 40.99%
Risk-free interest rate........................... 5.26% 5.95% 5.18%
Expected life..................................... 5 years 5 years 5 years
The 2,565,549 options outstanding as of December 31, 2000 have exercise
prices between $5.38 and $23.38, with a weighted average exercise price of
$14.08 and a weighted average remaining contractual life of 7.7 years. As of
December 31, 2000, 1,338,010 of these options are exercisable with a weighted
average exercise price of $11.61. The weighted average fair value of options
granted during the years ended December 31, 2000, 1999 and 1998 was $10.00,
$4.68 and $5.35, respectively.
During the years ended December 31, 2000, 1999 and 1998, no compensation
expense was recognized related to the stock options granted, however, had
compensation expense been determined consistent with SFAS 123 for 2000, 1999
and 1998 grants under the stock-based compensation plan, net income and
diluted net income per share for the years ended December 31, 2000, 1999 and
1998 would approximate the pro forma amounts below:
Year Ended December 31,
--------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------- -------- ------- -------- -------
(Dollars in thousands, except per share amounts)
Net income.............. $100,142 $98,306 $68,030 $65,614 $45,877 $44,210
Diluted net income per
common share........... $ 3.39 $ 3.33 $ 2.28 $ 2.20 $ 1.53 $ 1.47
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.
12. Stockholder Rights Plan and Common Stock Repurchase Plan
Standard Pacific has a stockholder rights agreement (the "Agreement") in
place. Under the Agreement, one right is granted for each share of outstanding
common stock. Each right entitles the holder, in certain takeover situations,
as defined, and after paying the exercise price (currently $40), to purchase
common stock having a market value equal to two times the exercise price.
Also, if we merge into another corporation, or if 50 percent or more of our
assets are sold, the rightholders may be entitled, upon payment of the
exercise price, to buy common shares of the acquiring corporation at a 50
percent discount from the then current market value. In either situation,
these rights are not available to the acquiring party. However, these exercise
features will not be activated if the acquiring party makes an offer to
acquire all of our outstanding shares at a price which is judged by the Board
of Directors to be fair to all of our stockholders. The rights may be redeemed
by Standard Pacific's Board of Directors under certain circumstances at the
rate of $.01 per right. The rights will expire on December 31, 2001, unless
earlier redeemed or exchanged.
44
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1995, the Board of Directors authorized the repurchase of up to $10
million of our common stock. The Board subsequently increased the repurchase
limit to $20 million in January 1997, to $25 million in October 1999 and to
$35 million in April 2000. For the year ended December 31, 2000, we
repurchased 525,400 shares of common stock for an aggregate price of
approximately $5.4 million. Since the inception of the stock repurchase
program and through the year ended December 31, 2000, we have repurchased
approximately 2.4 million shares of common stock for approximately $20.2
million, leaving a balance of approximately $14.8 million available for future
repurchases.
13. Discontinued Operations
In May 1997, the Board of Directors adopted a plan of disposition (the
"Plan") for our savings and loan subsidiary ("Savings"). Pursuant to the Plan,
we sold substantially all of Savings' mortgage loan portfolio in June 1997.
The proceeds from the sale of the mortgages were used to pay off substantially
all of the outstanding balances of Federal Home Loan Bank advances with the
remaining amount temporarily invested until the savings deposits were sold
along with Savings' remaining assets. The gain generated from the sale of this
mortgage loan portfolio, net of related expenses, was not material. In August
1998, we entered into a definitive agreement to sell the remainder of Savings'
business, including Savings' charter, which sale closed in May 1999. An after
tax net gain of $618,000, or $0.02 per diluted share, has been reflected in
the accompanying consolidated statements of income. Proceeds from the sale of
Savings were approximately $8.8 million before transaction and other related
costs. Savings has been accounted for as a discontinued operation and the
results of its operations have been segregated in the accompanying
consolidated financial statements.
Interest income from Savings aggregated $1,256,000 and $3,451,000 for the
years ended December 31, 1999 and 1998, respectively.
45
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Results of Quarterly Operations (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total(1)
-------- -------- -------- -------- ----------
(Dollars in thousands, except per share
amounts)
2000:
Revenues................... $232,550 $284,277 $302,755 $501,823 $1,321,405
Income before taxes........ 23,291 33,025 41,908 67,921 166,147
Net income................. 13,895 20,023 25,180 41,042 100,142
Diluted net income per
share..................... $ 0.48 $ 0.69 $ 0.85 $ 1.34 $ 3.39
======== ======== ======== ======== ==========
1999:
Revenues................... $215,070 $309,706 $297,589 $378,724 $1,201,088
Income from continuing
operations before taxes... 23,579 27,577 27,479 35,428 114,063
Income (loss) from
discontinued operations,
net of income taxes....... (77) (83) -- -- (159)
Gain on disposal of
discontinued operations,
net of income taxes....... -- 618 -- -- 618
Net income................. 13,794 16,775 16,181 21,280 68,030
Diluted Net Income Per
Share:
Income per share from
continuing operations... $ 0.46 $ 0.54 $ 0.54 $ 0.72 $ 2.27
Income (loss) per share
from discontinued
operations.............. (0.00) (0.00) -- -- (0.01)
Gain per share on
disposal of discontinued
operations.............. -- 0.02 -- -- 0.02
-------- -------- -------- -------- ----------
Net income per share..... $ 0.46 $ 0.56 $ 0.54 $ 0.72 $ 2.28
======== ======== ======== ======== ==========
- --------
(1) Some amounts do not add across due to rounding differences in quarterly
amounts and for diluted net income per share differences generated from
the quarterly and annual weighted average share calculations.
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required by this Item with respect to executive
officers is set forth under the caption "Executive Officers of the Company" in
Part I. The remaining information required by Items 401 and 405 of Regulation
S-K is set forth in the Company's 2001 Annual Meeting Proxy Statement which
will be filed with the Securities and Exchange Commission not later than 120
days after December 31, 2000 (the "Company's 2001 Proxy Statement"). The
Company's 2001 Proxy Statement, exclusive of the information set forth under
the captions "Report of the Compensation Committee," "Report of the Audit
Committee" and "Company Performance," is incorporated herein by this
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is set forth in the
Company's 2001 Proxy Statement. The Company's 2001 Proxy Statement, exclusive
of the information set forth under the captions "Report of the Compensation
Committee," "Report of the Audit Committee" and "Company Performance," is
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth in the
Company's 2001 Proxy Statement. The Company's 2001 Proxy Statement, exclusive
of the information set forth under the captions "Report of the Compensation
Committee," "Report of the Audit Committee" and "Company Performance," is
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is set forth in the
Company's 2001 Proxy Statement. The Company's 2001 Proxy Statement, exclusive
of the information set forth under the captions "Report of the Compensation
Committee," "Report of the Audit Committee" and "Company Performance," is
incorporated herein by this reference.
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
Reference
---------
(a)(1) Financial Statements, included in Part II of this report:
Report of Independent Public Accountants......................... 26
Consolidated Statements of Income for each of the three years in
the period ended December 31, 2000.............................. 27
Consolidated Balance Sheets at December 31, 2000 and 1999........ 28
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 2000............... 29
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 2000........................... 30
Notes to Consolidated Financial Statements....................... 32
(2) Financial Statement Schedules:
Financial Statement Schedules are omitted since the required
information is not present or is not present in the amounts sufficient
to require submission of a schedule, or because the information
required is included in the consolidated financial statements,
including the notes thereto.
(3) Index to Exhibits
See Index to Exhibits on pages 50-51 below.
(b) Reports on Form 8-K. Form 8-K dated December 22, 2000 reporting condensed
consolidating financial information pursuant to Rule 3-10(f) of Regulation S-X
promulgated under the Securities and Exchange Act of 1934.
(c) Index to Exhibits. See Index to Exhibits on pages 50-51 below.
(d) Financial Statements required by Regulation S-X excluded from the annual
report to shareholders by Rule 14(a)-3(b)(1). Not applicable.
48
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Irvine, California, on the 21st day of March 2001.
STANDARD PACIFIC CORP. (Registrant)
/s/ Stephen J. Scarborough
By: _________________________________
Stephen J. Scarborough
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Arthur E. Svendsen Chairman of the Board of Directors March 21, 2001
____________________________________
(Arthur E. Svendsen)
/s/ Stephen J. Scarborough Chief Executive Officer, President March 21, 2001
____________________________________ and Director (Principal Executive
(Stephen J. Scarborough) Officer)
/s/ Andrew H. Parnes Senior Vice President--Finance, March 21, 2001
____________________________________ Treasurer and Chief Financial
(Andrew H. Parnes) Officer (Principal Financial and
Accounting Officer)
/s/ Michael C. Cortney Executive Vice President and March 21, 2001
____________________________________ Director
(Michael C. Cortney)
Director
____________________________________
(James L. Doti)
/s/ Ronald R. Foell Director March 21, 2001
____________________________________
(Ronald R. Foell)
Director
____________________________________
(Douglas C. Jacobs)
/s/ Keith D. Koeller Director March 21, 2001
____________________________________
(Keith D. Koeller)
Director
____________________________________
(Larry McNabb)
Director
____________________________________
(Jeffrey V. Peterson)
49
INDEX TO EXHIBITS
*3.1 Certificate of Incorporation of the Registrant incorporated by reference
to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-4 (file no. 33-42293),
filed with the Securities and Exchange Commission on August 16, 1991.
*3.2 Certificate of Correction of Certificate of Incorporation of the
Registrant incorporated by reference to Exhibit 3.2 of the Registrant's
Registration Statement on Form 8-B, filed with the Securities and
Exchange Commission on December 17, 1991.
*3.3 Form of Certificate of Amendment to Certificate of Incorporation of the
Registrant incorporated by reference to Exhibit 3.3 of the Registrant's
Registration Statement on Form 8-B, filed with the Securities and
Exchange Commission on December 17, 1991.
*3.4 Form of Certificate of Merger of the Registrant incorporated by reference
to Exhibit 3.4 of the Registrant's Registration Statement on Form 8-B,
filed with the Securities and Exchange Commission on December 17, 1991.
*3.5 Bylaws of the Registrant incorporated by reference to Exhibit 3.5 of the
Registrant's Registration Statement on Form S-4 (file no. 333-37014),
filed with the Securities and Exchange Commission on May 15, 2000.
*4.1 Form of Specimen Stock Certificate, incorporated by reference to Exhibit
28.3 of the Registrant's Registration Statement on Form S-4 (file no. 33-
42293), as filed with the Securities and Exchange Commission on August
16, 1991.
*4.2 Rights Agreement, dated as of December 31, 1991, between the Registrant
and Manufacturers Hanover Trust Company of California, as Rights Agent,
incorporated by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-4 (file no. 33-42293), filed with the Securities and
Exchange Commission on August 16, 1991.
*4.3 Amendment No. 1 to Rights Agreement, effective as of May 12, 1999,
between the Registrant and First Chicago Trust Company of New York, as
rights agent, incorporated by reference to Exhibit 4.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
*4.4 Indenture, dated as of April 1, 1992, by and between the Registrant and
United States Trust Company of New York, Trustee, incorporated by
reference to Exhibit 4 to the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 24, 1993.
*4.5 Standard Pacific Corp. Officers' Certificate dated June 17, 1997 with
respect to the Registrant's 8 1/2% Senior Notes due 2007, incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 16, 1997.
*4.6 Standard Pacific Corp. Officers' Certificate dated February 5, 1998 with
respect to the Registrant's 8% Senior Notes due 2008, incorporated by
reference to Exhibit 4.4 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
*4.7 Indenture, dated as of April 1, 1999, by and between the Registrant and
The First National Bank of Chicago, as Trustee, incorporated by reference
to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on April 16, 1999.
*4.8 First Supplemental Indenture relating to the Registrant's 8 1/2% Senior
Notes due 2009, dated as of April 13, 1999, by and between the Registrant
and The First National Bank of Chicago, as Trustee, with Form of Note
attached, incorporated by reference to Exhibit 4.2 of the Registrant's
Current Report on Form 8-K dated April 16, 1999.
*4.9 Second Supplemental Indenture relating to the Registrant's 9 1/2% Senior
Notes due 2010, dated as of September 5, 2000, by and between the
Registrant and Bank One Trust Company, N.A., as Trustee, with Form of
Note attached, incorporated by reference to Exhibit 4.1 on the
Registrant's Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 8, 2000.
50
*10.1 Ninth Amended and Restated Revolving Credit Agreement dated as of
September 26, 2000, among the Registrant, Bank of America, National
Association, Bank One, NA, Guaranty Federal Bank, F.S.B., Bank United,
Fleet National Bank, PNC Bank, National Association, Comerica Bank,
Sanwa Bank California, Union Bank of California, SunTrust Bank and
AmSouth Bank, incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.
*10.2 Standard Pacific Corp. 1991 Employee Stock Incentive Plan, incorporated
by reference to Annex B of the Registrant's prospectus dated October
11, 1991, filed with the Securities and Exchange Commission pursuant to
Rule 424(b).
*10.3 Form of Stock Option Agreement to be used in connection with the
Standard Pacific Corp. 1991 Employee Stock Incentive Plan, incorporated
by reference to Exhibit 28.2 of the Registrant's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on
January 3, 1992.
*10.4 Standard Pacific Corp. 1997 Stock Incentive Plan, incorporated by
reference to Exhibit 99.1 of the Registrant's Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on August
21, 1997.
*10.5 Form of Non-Qualified Stock Option Agreement to be used in connection
with Registrant's 1997 Stock Incentive Plan, incorporated by reference
to Exhibit 99.2 of the Registrant's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on August 21, 1997.
*10.6 Form of Non-Qualified Director's Stock Option Agreement to be used in
connection with the Registrant's 1997 Stock Incentive Plan,
incorporated by reference to Exhibit 99.3 of the Registrant's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on August 21, 1997.
*10.7 Form of Incentive Stock Option Agreement to be used in connection with
the Registrant's 1997 Stock Incentive Plan, incorporated by reference
to Exhibit 99.4 of the Registrant's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on August 21, 1997.
*10.8 Standard Pacific Corp. 2000 Stock Incentive Plan, incorporated by
reference to Exhibit 10.8 of the Registrant's Registration Statement on
Form S-4 (file no. 333-37014) filed with the Securities and Exchange
Commission on May 15, 2000.
*10.9 Stock Purchase Agreement, dated as of September 30, 1997, by and
between the Registrant, Duc Development Company and Daniel A. Duc,
incorporated by reference to Exhibit 10.9 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
*10.10 Stock Purchase Agreement, dated as of August 26, 1998, between the
Registrant and American General Finance, Inc., as amended on March 31,
1999, incorporated by reference to Exhibit 10.2 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
*10.11 Agreement and Plan of Merger dated as of April 14, 2000 among the
Registrant, The Writer Corporation and TWC Acquisition Corp.,
incorporated by reference to Exhibit 2.1 of the Registrant's
Registration Statement on Form S-4 (file no. 333-37014), filed with the
Securities and Exchange Commission on May 15, 2000.
*10.12 Industrial Lease between Irvine Technology Partners III and the
Registrant, incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
10.13 Change of Control Agreement, dated December 1, 2000, between the
Registrant and Stephen J. Scarborough.
10.14 Form of Change of Control Agreement, between the Registrant and each of
Michael C. Cortney, Andrew H. Parnes, Clay A. Halvorsen and Jari L.
Kartozian.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
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(*) Previously filed.
51